<PAGE>
As filed with the Securities and Exchange Commission on December 15, 1995
Registration Number ___________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Xytronyx, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3258753
---------------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
6555 Nancy Ridge Drive, Suite 200, San Diego, CA 92121 - (619) 550-3900
-----------------------------------------------------------------------
(Address, including zip code and telephone number of registrant's
principal executive offices)
Dale A. Sander
Vice President of Finance and Chief Financial Officer
6555 Nancy Ridge Drive, Suite 200, San Diego, CA 92121 - (619) 550-3900
-----------------------------------------------------------------------
(Address, including zip code and telephone number of agent for service)
With a copy to:
Edward F. Cox
Donovan Leisure Newton & Irvine
30 Rockefeller Plaza, New York, New York 10112 (212) 632-3050
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
Calculation of Registration Fee
<TABLE>
<CAPTION>
===================================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Offering Registration
Registered Registered Per Share Price Fee
- ----------------------- ---------------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C>
Common Stock 3,136,500 $1.375(1) $4,312,688(1) $1,487.13
($0.02 par value) Shares
Warrants to Purchase 3,920,625 $0.375(2) $1,470,234(2) $ 506.98
Common Stock Warrants
Common Stock 3,920,625 $1.375(1) $5,390,859(1) $1,858.92
($0.02 par value) Shares
Underlying Warrants
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 475(c) under the Securities Act of 1933 on the basis of the
average of the high and low prices per share of the Registrant's Common
Stock as reported by the American Stock Exchange on December 14, 1995.
(2) Estimated solely for the purpose of calculating the registration fee on the
basis of the difference between the highest exercise price of the Warrants
and the average of the high and low prices per share of the Common Stock as
in (1) above.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
XYTRONYX, INC.
CROSS REFERENCE SHEET
Between Items in Part I of the Registration Statement (Form S-3) and Prospectus
pursuant to Item 501 of Regulation S-K.
<TABLE>
<CAPTION>
Item of Form S-3 Location in Prospectus
---------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement Facing Sheet of Registration Statement;
and Outside Front Cover Page of Cross Reference Sheet; Outside Front
Prospectus Cover Page
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Pages of Prospectus Certain Documents by Reference;
Inside Front Cover Page
3. Summary Information, Risk Factors Prospectus Summary, The Company
and Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution; Outside Front
Cover Page
9. Description of Securities to be Description of Capital Stock
Registered
10. Interests of Named Experts and Counsel *
11. Material Changes *
12. Incorporation of Certain Information by Incorporation of Certain Information by
Reference Reference
13. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
</TABLE>
____________________________
* Item is omitted because it is inapplicable.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time this registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful, prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, dated December 15, 1995
PROSPECTUS
- ----------
XYTRONYX, INC.
3,136,500 Shares
of Common Stock ($0.02 Par Value)
3,920,625 Warrants
to Purchase Common Stock
3,920,625 Shares
of Common Stock ($0.02 Par Value)
Underlying Warrants
_______________________________________
This Prospectus relates to the sale of a maximum of 7,057,125 shares (the
"Shares") of common stock, par value $0.02 per share (the "Common Stock") of
Xytronyx, Inc., a Delaware corporation (the "Company"), which may be sold from
time to time by the stockholders specified in this Prospectus (the "Selling
Stockholders"). The 7,057,125 Shares are comprised of (i) 2,788,000 Shares
currently owned directly by the Selling Stockholders, (ii) 348,500 Shares
currently issuable by the Company to Selling Stockholders under purchase
options, (iii) up to 3,485,000 Shares which may be acquired by Selling
Stockholders by exercising currently exercisable Warrants issued by the Company
and held by the Selling Stockholders and (iv) 435,625 Shares which may be
acquired by Selling Stockholders by exercising Warrants currently issuable by
the Company to such Selling Stockholders under the aforementioned purchase
options (see "Selling Stockholders").
This Prospectus also relates to the sale of a maximum of 3,920,625 warrants to
purchase Shares of Common Stock (the "Warrants"), which may be sold from time to
time by the Selling Stockholders specified in this Prospectus. The 3,920,625
Warrants are comprised of (i) 3,485,000 currently exercisable Warrants issued by
the Company and held by the Selling Stockholders and (ii) 435,625 Warrants
currently issuable by the Company to Selling Stockholders under the
aforementioned purchase options (see "Selling Stockholders").
The Company will not receive any of the proceeds from any sales of the Shares of
Common Stock or Warrants. The Registration Statement of which this Prospectus
forms a part is being filed pursuant to the terms of certain agreements between
the Company and the Selling Stockholders.
The Shares and Warrants may be sold by the Selling Stockholders from time to
time in one or more transactions at market prices prevailing at the time of the
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may sell the Shares and Warrants offered
hereby (i) through brokers and dealers, (ii) on the American Stock Exchange in
the case of the Shares, (iii) any other exchanges upon which the Shares or
Warrants are listed, (iv) "at the market" to or through a market maker or into
an existing trading market and/or (v) in other ways not involving exchanges,
market makers or established trading markets, including direct sales to
purchasers. See "Plan of Distribution."
The Common Stock is listed and traded on the American Stock Exchange under
symbol "XYX." The closing price of the Common Stock on December 14, 1995 was
$1.375 per share. No trading market for the Warrants currently exists.
FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS SEE "RISKS
AND OTHER INVESTMENT CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 15, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the Commission's
Regional Offices at the 14th Floor, 75 Park Place, New York, New York, 10007;
and Room 1204 Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois, 60604. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Such documents filed by the
Company can also be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York, 10006.
The Company has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended, (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement, which may
be inspected and copied in the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarters
ended June 30, 1995 and September 30, 1995;
(3) The Company's Current Reports on Form 8-K filed with the Commission on
May 12, 1995, May 30, 1995, June 15, 1995, July 7, 1995, August 18,
1995, October 11, 1995 and December 4, 1995;
(4) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 0-14838),
declared effective on September 23, 1986, by which the Company's
shares of Common Stock were registered under Section 12 of the
Exchange Act and any other amendments or reports filed for the purpose
of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares of Common Stock or Warrants shall
2
<PAGE>
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Xytronyx, Inc., 6555
Nancy Ridge Drive, Suite 200, San Diego, CA 92121, Attention: Chief Financial
Officer (telephone: (619) 550-3900).
3
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the information included elsewhere
in this Prospectus and the detailed information and financial statements
appearing in the documents incorporated in this Prospectus by reference.
THE COMPANY
Xytronyx, Inc. (the "Company" or "Xytronyx") is engaged primarily in the
development and commercialization of diagnostic health care products. The
Company was incorporated under the laws of Delaware in September 1983.
The Company's primary product is the Periodontal Tissue Monitor (the "PTM"), a
disposable test designed to assist with the diagnosis and monitoring of the
treatment of periodontitis, a serious form of periodontal disease and the most
common cause of tooth loss in adults. The PTM is approved for sale in much of
Western Europe, China and Canada. Clinical trials required for Food and Drug
Administration ("FDA") approval to market the PTM in the United States are
currently underway and are expected to be completed in February 1996. Clinical
trials required for regulatory approval in Japan are expected to start by the
end of 1995.
The Company's proprietary Periodontal Tissue Monitor is an eye-readable
disposable test designed for use within the dental office to assist
practitioners (dentists and periodontists) in the diagnosis of periodontitis and
in the monitoring of the effectiveness of their efforts to treat the disease.
The PTM works by identifying the enzyme aspartate aminotransferase ("AST") which
is found in crevicular fluid when cells die. The Company's (and its licensor's)
technology regarding the use of AST to assist in the diagnosis of periodontitis
is encompassed by a series of United States and international patents.
In October 1995, the Company signed an agreement with the Procter & Gamble
Company (P&G) which provides P&G the option to enter into an exclusive marketing
agreement for the PTM worldwide, with the exception of Japan. P&G has the right
to exercise the option up until four weeks after U.S. Food and Drug
Administration (FDA) approval to market the product in the United States. The
option agreement calls for P&G to make certain payments to the Company based
upon the achievement of milestones, including FDA approval, and the exercise of
the option by P&G. During the option period, P&G is expected to conduct market
tests of the Periodontal Tissue Monitor in the United States. In January 1995
the Company entered into an agreement with Shofu Dental Company of Japan under
which Shofu is to fund and manage clinical trials of the PTM in Japan, and
market the product in Japan after obtaining regulatory approval in that country.
The Company's second major product is the Kephra(TM) reversible color-change
technology. The Kephra technology was derived from research performed by the
Company related to a consumer UV diagnostic product. The name "Kephra"
encompasses Xytronyx's family of dyes which react with sunlight; these dyes are
colorless when viewed under room fluorescent or incandescent light, but become
very colorful when exposed to sunlight or other sources of UV light. The Kephra
process is reversible, and when the dyes are removed from sunlight they return
to their original colorless appearance. Kephra dyes have a long lifetime, and
the colorless-to-color process can be repeated numerous times.
4
<PAGE>
Potential applications for Kephra include apparel, promotional and advertising
programs, and printing on other products which could benefit from the potential
additional consumer appeal of the color-change feature. Coors Brewing Company
paid Xytronyx $1 million for use of Kephra in a summer 1994 promotion of its
Coors Light(R) brand. Xytronyx is currently performing product development for a
number of companies regarding the incorporation of Kephra into their products,
including, for example: (1) a large consumer products company interested in
using Kephra in conjunction with promotions relating to the 1996 Summer
Olympics, (2) a major international watch manufacturer and (3) a major U.S.-
based company evaluating Kephra for use in security applications.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered:
Common Stock.......... 3,136,500 Shares of Common Stock, par value $0.02
per share, currently issued and outstanding, offered
by the Selling Stockholders. (1)
Warrants.............. 3,920,625 Warrants to purchase Common Stock,
currently issued and outstanding, offered by the
Selling Stockholders. (2)
Common Stock
Underlying Warrants... 3,920,625 Shares of Common Stock, $.02 par value per
share, to be issued and outstanding upon the
exercise of existing Warrants, offered by the
Selling Stockholders. (2)
Common Stock Outstanding... 8,051,029 shares as of December 15, 1995 (3)
Plan of Distribution....... The Shares and Warrants offered hereby may be sold
from time to time in one or more transactions at
market prices prevailing at the time of the sale, at
prices related to such prevailing market prices or
at negotiated prices.
Use of Proceeds............ The Company will not receive any of the proceeds
from the sale of the Shares of Common Stock and
Warrants offered hereby. The proceeds, if any, from
the exercise of Warrants will be used for product
development and general corporate purposes.
AMEX Symbol for Common
Stock...................... XYX
Proposed Trading Symbol
for Warrants............... XYXW
</TABLE>
________________________
(1) Includes 348,500 Shares currently issuable by the Company to certain Selling
Stockholders under purchase options.
(2) Includes 435,625 Warrants and 435,625 Shares underlying the Warrants,
respectively, currently issuable by the Company to certain Selling
Stockholders under purchase options.
(3) Does not include: (i) 3,485,000 shares of Common Stock reserved for issuance
upon exercise of currently exercisable Warrants issued by the Company and
held by the Selling Stockholders, (ii) 348,500 shares of Common Stock, and
435,625 shares of Common Stock underlying Warrants, reserved for issuance
upon exercise of purchase options currently held by Selling Stockholders
(see "Selling Stockholders"), (iii) 1,050,900 shares of Common Stock
reserved for issuance to management, key employees, Directors, and
consultants under various stock option plans or by direct grant from the
Board of Directors (of which options to purchase 923,500 shares of common
stock at a weighted average price of $6.60 have been granted to date), (iv)
241,600 shares of Common Stock issuable at a weighted average price of
$10.69 per share upon the exercise of outstanding warrants held by
consultants and other third parties and (v) 309,734 shares of Common Stock
issuable at a price of $22.00 per share to holders of warrants to be issued
by the Company under a June 1994 settlement agreement.
6
<PAGE>
RISKS AND OTHER INVESTMENT CONSIDERATIONS
DEVELOPMENT STAGE COMPANY; ACCUMULATED DEFICIT; ANTICIPATED FUTURE LOSSES
The Company has generated only limited revenues from operations to date. As of
September 30, 1995 the Company had an accumulated deficit of $26,623,339, and
substantial losses may continue for the foreseeable future. The Company's
operations are subject to numerous risks associated with the establishment and
development of new products. The Company's ability to generate significant
revenues and profitability will depend, among other factors, on the successful
completion of product development, obtaining regulatory approvals, establishing
manufacturing and marketing capabilities, gaining market acceptance for its
products, and obtaining adequate funds to finance operations. There can be no
assurance that the Company will generate any revenues or achieve profitability.
LIMITED CASH RESOURCES; QUALIFICATION OF AUDITORS OPINION
The Company's independent auditors included an explanatory paragraph in their
report on the Company's financial statements for the fiscal year ended March 31,
1995 as to the uncertainty relating to the Company's ability to continue as a
going concern. As of September 30, 1995 the Company had cash of approximately
$319,000. During November 1995 the Company raised approximately $3,000,000 in
net proceeds from a private placement of units consisting of Common Stock and
Warrants. The Company anticipates that without significant revenues such
resources may be depleted by the end of December 1996.
POTENTIAL NEED FOR ADDITIONAL FUNDS
The Company has expended and intends to continue to expend substantial funds to
conduct research and development activities, including completion of the U.S.
clinical testing for the PTM product. The Company currently estimates that
without significant revenues its existing capital resources will fund the
Company's operations through approximately December 1996. Accordingly, the
Company will require significant additional funds, either from marketing
partners, product sales, or additional equity or debt financing, to complete
development and commence commercial-scale manufacturing of its products. The
actual date through which existing cash resources will be adequate to fund the
Company's operations, and timing and the magnitude of the need for additional
equity financing, may vary significantly based on numerous factors, including
(i) the results of U.S. clinical studies for the PTM, (ii) the timing and
receipt of U.S. regulatory approval, if any, for the PTM, (iii) the timing and
the amount, if any, of payments received from P&G under the existing option
agreement for PTM marketing rights, (iv) the timing and amount, if any, of
revenues from Kephra products and (v) the timing and the amount, if any, of
proceeds available from the exercise of the Warrants. The Company has no
commitments for any additional financing and there can be no assurance that such
financing will be available on acceptable terms, if at all. If adequate funds
on acceptable terms are not available to the Company, the Company may be
required to delay, scale back or eliminate product development efforts, or cease
operations, in whole or in part.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS
Research and development, clinical trials, manufacturing, and marketing of
medical devices such as the PTM product are subject to extensive regulatory
approval and review processes by the FDA and other regulatory agencies in the
7
<PAGE>
United States and other countries. The process of obtaining FDA and other
required regulatory approvals for PTM, including required clinical testing, is
lengthy, expensive and uncertain. There can be no assurance that, even after
such time and expenditures, the Company will be able to obtain necessary
regulatory approvals for the manufacturing or marketing of any products. In
August 1989, after completing clinical trials, the Company filed a PMA
application with the FDA for approval to market an earlier-generation version of
the PTM. Despite receiving unanimous recommendation for approval in May 1990
from an FDA dental advisory panel, the FDA declined to approve the product and
ultimately mandated that the Company complete more extensive clinical trials
before reapplying for approval. Failure to ultimately or timely obtain FDA
approval of the PTM is likely to have a material adverse effect on the Company.
DEPENDENCE ON OTHERS FOR MARKETING AND MANUFACTURING
The Company expects to rely upon marketing partnerships with unaffiliated
medical product companies to market the PTM. Such reliance may limit the
Company's ability to control the commercialization of this product. Although
the Company believes that its collaborative partners will have an economic
motivation to commercialize the products which they have the right and
responsibility to market, the amount and timing of resources devoted to these
activities generally will be controlled by each individual partner. There can
be no assurance that such partners will be successful in commercializing the PTM
product. The Company also relies upon collaborative agreements with
unaffiliated companies for the manufacturing of the PTM product, and expects to
continue to rely upon such relationships at least in respect to production
associated with initial commercial sales, and perhaps beyond the initial stages
of commercialization. Such reliance may limit the Company's ability to control
the manufacturing of this product, and there are no assurances that the Company
can maintain contract manufacturing relationships in the future on acceptable
terms.
COMPETITION
The medical device industry is characterized by rapidly evolving technology and
intense competition. The consumer markets into which the Kephra reversible
photochromic technology is targeted for marketing are also extremely
competitive. Many of the companies in these industries have substantially
greater financial resources and development capabilities than the Company, and
many in the medical device industry have substantially greater experience in
undertaking clinical testing of products, obtaining regulatory approvals and
manufacturing and marketing medical products. There can be no assurance that
the Company's products will be more effective or achieve greater market
acceptance than any current or future competitive products, or that competitors
will not develop products that are more effective than the Company's or that
would render the Company's products and technologies less competitive or
obsolete.
UNCERTAIN MARKET ACCEPTANCE; LIMITED PRODUCT LINE
The Company has two primary products, PTM and Kephra, and both represent
relatively new technologies. There is substantial risk that potential consumers
of the products will not appreciate the expected benefits or recognize the
potential applications of these products. The degree of market acceptance of
the Company's products will depend upon a number of variables and cannot be
predicted with any certainty.
8
<PAGE>
UNCERTAINTY OF PROTECTION OFFERED BY PATENTS AND TRADE SECRETS
The Company and the licensor of its PTM technologies have been issued three U.S.
patents relating to the PTM product, and the Company has one additional patent
application pending. The Company has been issued one U.S. patent relating to
Kephra and has another patent application pending. There is no assurance that
the Company will be granted patents on either of the two pending applications.
Further, there is no assurance that any such patents will offer meaningful
protection, particularly with regards to the Kephra technology where the patents
provide potential protection over only certain aspects and/or applications of
the technology. If there is an infringement of the patents which have been
issued to the Company, the costs of enforcing its rights in an infringement
action could be great and divert the funds and resources which would be
otherwise available for other aspects of the Company's operations, or be so
excessive or time consuming that the Company will be unable to challenge the
infringement. The Company also relies upon trade secret protection,
particularly in the Kephra area. There can be no assurances that competitors
will not independently develop substantially equivalent information or
techniques or otherwise gain access to the Company's trade secrets.
DEPENDENCE UPON KEY PERSONNEL
The Company is currently dependent on certain executive officers and management
personnel. The loss of these individuals might have a material adverse effect
on the research and development programs of the Company. Competition for
qualified employees among medical device companies is intense, and the loss of
any of such persons, or an inability to attract, retain and motivate additional
highly skilled employees, could adversely affect the Company's business and
prospects. There can be no assurance that the Company will be able to retain
its existing personnel or to attract additional qualified employees.
UNCERTAINTY OF HEALTH CARE REFORM AND EFFECT ON THIRD-PARTY REIMBURSEMENT
Successful commercialization of the PTM product may depend in part on the
availability of reimbursement for the cost of such products from third-party
health care payers, such as the government and private insurance plans. Third-
party payers in the U.S. and internationally, including countries with national
health care systems, have historically been and are increasingly challenging the
price and/or willingness to reimburse costs of medical products and services,
and there can be no assurance that adequate third-party coverage will be
available with respect to any of the Company's products. Various legislative
and regulatory proposals aimed at changing health care systems in both the U.S.
and certain international countries have been proposed. While the Company
cannot predict whether any such proposals will be adopted or the effect such
proposals may have on its business, any proposals which result in pricing
constraints on the Company's products may have a material adverse effect on the
Company.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use or misuse of its products result in adverse
effects. The Company currently maintains $5 million of product liability
insurance coverage. There can be no assurance that such coverage is or in the
future will be adequate or that adequate insurance will be available in the
future at an acceptable cost, if at all. In addition, there can be no assurance
that a product liability claim, even if the Company has insurance coverage,
would not materially adversely affect the business or financial condition of the
Company.
9
<PAGE>
LIMITED SOURCES OF RAW MATERIALS
Certain raw materials used in the formulation of Kephra inks are available only
from single sources. The unavailability of these materials might limit the
breadth of Kephra products the Company could produce and offer for sale.
IMPACT OF POTENTIAL AMEX DELISTING ON MARKETABILITY OF SECURITIES
The Company's Common Stock is currently listed for trading on the American Stock
Exchange (the "AMEX" or the "Exchange"). The Constitution of the Exchange
provides that its Board of Governors may, at its discretion, at any time, and
without notice, suspend dealings in, or may remove any security from, listing or
unlisted trading privileges. The Exchange, as a matter of policy, will consider
the suspension of trading in, or removal from listing or unlisted trading of,
any security, for among other reasons, when, in the opinion of the Exchange, the
financial condition and/or operating results of the issuer appear to be
"unsatisfactory." The determination as to whether a security warrants continued
trading on the Exchange is not based on any precise mathematical formula. Each
case is considered on the basis of all relevant facts and circumstances and in
light of the objectives of the Exchange's policies regarding continued listing.
To assist in the application of these policies, the Exchange has adopted certain
guidelines, under which it will normally give consideration to suspending
dealings in, or removing, a security from listing or unlisted trading. The
guidelines relating to financial condition and/or operating results are: "The
Exchange will normally consider suspending dealings in, or removing from the
list, securities of a company which: (i) has stockholders' equity of less than
$2,000,000 if such company has sustained losses from continuing operations
and/or net losses in two of its three most recent fiscal years or (ii) has
stockholders' equity of less than $4,000,000 if such company has sustained
losses from continuing operations and/or net losses in three of its four most
recent fiscal years or (iii) has sustained losses from continuing operations
and/or net losses in its five most recent fiscal years or (iv) has sustained
losses which are so substantial in relation to its overall operations or its
existing financial resources, or its financial condition has become so impaired
that it appears questionable, in the opinion of the Exchange, as to whether such
company will be able to continue operations and/or meet its obligations as they
mature." At September 30, 1995, the Company had stockholders' equity of
$298,000 and has experienced losses from continuing operations and net losses in
the past which fall within certain of the aforementioned financial guidelines.
Accordingly, the Company falls below the AMEX stockholders' equity guidelines
outlined above. The Company has received no indication to date from the AMEX
that delisting might occur, and has no basis for commenting on the likelihood of
such action. If delisting were to occur, an investor might find it more
difficult to dispose of, or obtain accurate quotations as to the price of, the
Company's listed securities, and such delisting itself might have a material
adverse effect on the Company and the prices of its securities.
LIMITED TRADING VOLUME; POSSIBLE PRICE VOLATILITY
Historically, the Common Stock has experienced relatively low daily trading
volumes in relation to the aggregate number of Shares offered in this
Prospectus. The market price of the Common Stock also has been volatile and it
may continue to be volatile as has been the case with the securities of other
public medical technology companies. No market currently exists for the
Warrants. Factors such as announcements by the Company or its competitors
concerning technological innovations, results of clinical trials, new commercial
products or procedures, proposed government regulations and developments or
disputes relating to patents or proprietary rights may have a significant effect
10
<PAGE>
on the market price of the Company's securities. Changes in the market price of
the Common Stock may bear no relation to the Company's actual operations or
financial results. Each of the foregoing factors may also be applicable to the
Warrants in the future. No predictions can be made of the effect that future
market sales of Shares of Common Stock or Warrants, or the availability of such
Shares or of Warrants for sale, will have on the market price prevailing from
time to time. Sales of substantial amounts of Common Stock or Warrants, or the
perception that such sales might occur, could adversely affect prevailing market
prices. In addition, there can be no assurance that such Warrants will be
listed for trading on any national securities exchange or NASDAQ, or that any
active trading market will develop for such Warrants.
EXERCISE OF WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
Investors will not be able to exercise the Warrants unless at the time of
exercise a registration statement under the Securities Act registering the
shares of Common Stock issuable upon exercise of such Warrants is effective or
such shares have been deemed to be exempt from registration, and such shares
have been qualified or deemed to be exempt from registration or qualification
under the securities laws of the states of residence of the holders of such
Warrants. The Company has covenanted to maintain the effectiveness of a
registration statement under the Securities Act which shall cover the shares of
Common Stock underlying the Warrants for a period of three years ending November
27, 1998, but there can be no assurance that the Company will be able to do so.
If the Company is unable to maintain a current, effective registration statement
because the costs are uneconomical, or because the value of the shares of Common
Stock issuable upon exercise of the Warrants is less than the Warrant exercise
price, or any other reasons, or if the Company elects not to maintain the
registration after November 27, 1998, the Warrant holders may be unable to
exercise the Warrants and the Warrants may become valueless. Holders of the
Warrants may also be deprived of any value if the Common Stock issuable upon
exercise of the Warrants is not qualified or exempt from qualification in the
particular states in which the holders of the Warrants reside. If the Company
is unable or chooses not to register or qualify or maintain the registration or
qualification of the shares of Common Stock underlying the Warrants for sale in
all the jurisdictions in which the holders of Warrants may reside, the Company
could not permit such Warrants to be exercised and Warrant holders in such
states may have no choice but to either sell the Warrants or let them expire.
Prospective investors who wish to know whether or not the Common Stock may be
issued upon exercise of Warrants by a Warrant holder in a particular state
should consult with the securities department of the state in question or
inquire of the Company.
The Warrants are subject to redemption by the Company on 60-days' prior written
notice, which notice may be only given under certain conditions. If a written
notice of redemption is given and the redemption price is paid, the Warrant
holders will lose their rights to exercise their Warrants at the end of the 60-
day notice period. Notice of redemption of the Warrants could cause the holders
thereof to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holders to do so, to sell the Warrants at the
market price when they might otherwise wish to hold the Warrants, or to accept
the redemption price, which is likely to be less than the market value of the
Warrants at the time of redemption.
11
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds resulting from the sale of the Shares
of Common Stock and Warrants by the Selling Stockholders. See "Selling
Stockholders."
The Warrants entitle the holder to purchase one shares of Common Stock from the
Company at an exercise price of $1.00 per share. In the event that any of the
Warrants are exercised in the future, the Company intends to use the net
proceeds from the sale of shares of Common Stock issuable upon such exercise to
further commercialize the PTM and Kephra products including financing of
inventory and accounts receivable, product development, general working capital,
and general corporate purposes.
12
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information concerning the number of
Shares of Common Stock and Warrants beneficially owned by each of the Selling
Stockholders as of December 15, 1995 and as adjusted to reflect the sale of
shares.
<TABLE>
<CAPTION>
Securities Owned and
Offered by this Prospectus After Offering
------------------------------------- -------------------------------------------
Common
Stock Common Stock Warrants
Name of Selling Common Underlying -------------------- --------------------
Stockholder Stock Warrants Warrants Shares Percent (1) Number Percent (2)
----------- ------ -------- -------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
126736 Canada Inc. 65,200(3) 81,500(3) 81,500(3) 0 (*) 0 (*)
Aries Domestic Fund, L.P. 225,000(4) 281,250(4) 281,250(4) 0 (*) 0 (*)
The Aries Trust 225,000(4) 281,250(4) 281,250(4) 0 (*) 0 (*)
Paine Webber c/f IRA
of Alan M. Blender 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Hyman Bloom 54,800(3) 68,500(3) 68,500(3) 0 (*) 0 (*)
Patrick J. Callahan, Jr. 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Robert J. Conrads 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Donald G. Drapkin 160,000(3) 200,000(3) 200,000(3) 0 (*) 0 (*)
Eastside Investment Partners 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Joseph A. Fabiani 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Carlos Plancarte Garcia 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Michael J. Garnick 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Marc Gelman 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
Mark Goodman 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Robert P. Gordon 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Thomas O. Hecht 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
The Holding Company 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
Jackson Hole Investments
Acquisitions L.P. 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Peter L. Jensen 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
Ira Kanarick 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Peter & Donna Kash 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Securities Owned and
Offered by this Prospectus After Offering
------------------------------------- -------------------------------------------
Common
Stock Common Stock Warrants
Name of Selling Common Underlying -------------------- --------------------
Stockholder Stock Warrants Warrants Shares Percent (1) Number Percent (2)
----------- ------ -------- -------- ------ ----------- ------ -----------
(continued)
<S> <C> <C> <C> <C> <C> <C> <C>
Donald R. Kendall, Jr.
and Diane S. Kendall,
JTWROS 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Dr. Daniel Kessel 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Lawrence J. Kessel 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Keys Foundation, de
Ruyterkade 58a, Curacao
Netherlands, Antilles 120,000(3) 150,000(3) 150,000(3) 0 (*) 0 (*)
Robert Klein M.D. 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Larich Associates 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Gregory S. Lenchner and
Domenica G. Lenchner 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
The Lincoln Fund, L.P. 100,000(3) 125,000(3) 125,000(3) 0 (*) 0 (*)
The Lincoln Fund Tax
Advantage, L.P. 60,000(3) 75,000(3) 75,000(3) 0 (*) 0 (*)
MDB Capital Corp. 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Richard Molinsky 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Arthur J. Nagle 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
P. Sherrill Neff 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Cecilia Obregon 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
John S. Osterweis,
Trustee for The Osterweis
Revocable Trust, U/A
dated 9/13/93 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Palmetto Partners, Ltd. 200,000(3) 250,000(3) 250,000(3) 0 (*) 0 (*)
Arthur C. Reichstetter 120,000(3) 150,000(3) 150,000(3) 0 (*) 0 (*)
Rick Steiner Productions, Inc. 28,000(3) 35,000(3) 35,000(3) 0 (*) 0 (*)
J. Philip Rosen 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Jerry Ruyan 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Andrew W. Schonzeit 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Securities Owned and
Offered by this Prospectus After Offering
------------------------------------- -------------------------------------------
Common
Stock Common Stock Warrants
Name of Selling Common Underlying -------------------- --------------------
Stockholder Stock Warrants Warrants Shares Percent (1) Number Percent (2)
----------- ------ -------- -------- ------ ----------- ------ -----------
(continued)
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce Slovin 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
Gary J. Strauss 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Suan Investments 80,000(3) 100,000(3) 100,000(3) 0 (*) 0 (*)
Morris Talansky 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Hindy Taub 20,000(3) 25,000(3) 25,000(3) 0 (*) 0 (*)
Herman Tauber 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Uzi Zucker 40,000(3) 50,000(3) 50,000(3) 0 (*) 0 (*)
Mark Abeshouse 875(5) 1,094(5) 1,094(5) 0 (*) 0 (*)
Joseph Edelman 3,731(5) 4,664(5) 4,664(5) 0 (*) 0 (*)
Peter Kash 19,246(5) 24,058(5) 24,058(5) 0 (*) 0 (*)
Scott Katzmann 35,507(5) 44,384(5) 44,384(5) 0 (*) 0 (*)
Martin Kratchman 1,426(5) 1,783(5) 1,783(5) 0 (*) 0 (*)
Lindsay A. Rosenwald 192,170(5) 240,213(5) 240,213(5) 0 (*) 0 (*)
Wayne L. Rubin 20,522(5) 25,652(5) 25,652(5) 0 (*) 0 (*)
Karl Ruggeberg 4,500(5) 5,625(5) 5,625(5) 0 (*) 0 (*)
Michael S. Weiss 20,522(5) 25,652(5) 25,652(5) 0 (*) 0 (*)
</TABLE>
___________
(*) Represents, after the sale of all Shares of Common Stock and Warrants
encompassed by this Prospectus, less than 1% of the outstanding Common Stock
and Warrants.
(1) The percentage of the outstanding Common Stock to be held by the Selling
Stockholders after the offering is calculated based on the total of
13,038,454 shares comprised of 8,051,029 shares issued and outstanding on
December 15, 1995 plus 4,987,425 shares issuable upon exercise of warrants
and options which are exercisable within 60 days following such date.
(2) The percentage of the outstanding Warrants to be held by the Selling
Stockholders after the offering is calculated based on the total of
3,920,625 Warrants comprised of 3,485,000 Warrants issued and outstanding on
December 15, 1995 plus 435,625 Warrants issuable upon exercise of the
purchase option described in (4) following which is exercisable within 60
days following such date.
(3) Subject to a lock-up agreement under which the holder has agreed not to sell
more than 25% of the owned and offered holding of each security prior to May
27, 1996, nor more than 50% prior to August 27, 1996, nor more than 75%
prior to November 27, 1996.
(4) 200,000 of the Shares of Common Stock and 250,000 of the Warrants are
currently outstanding and are subject to the provisions of the lock-up
agreement described in (3) above. The remaining 25,000 of the Shares of
Common Stock and 31,250 Warrants relates to currently exercisable options to
purchase Common Stock and Warrants as described in (5) below.
15
<PAGE>
(5) Relates to currently exercisable options to purchase Common Stock and
Warrants. As described later in this section, an option to purchase a total
of 348,500 Shares of Common Stock and 435,625 Warrants was granted by the
Company to Paramount Capital, Inc. Paramount assigned its purchase option
to and among the persons listed above referenced with (4) and (5). Upon
exercise of the option the Common Stock and Warrants would be subject to a
lock-up agreement under which the holder could not sell more than 25% of the
owned and offered holding of each security prior to May 27, 1996, nor more
than 50% prior to August 27, 1996, nor more than 75% prior to November 27,
1996.
___________
The Shares of Common Stock and the Warrants are being registered under the
Securities Act pursuant to the terms of certain registration rights agreements
between the Selling Stockholders and the Company entered into at the time the
Selling Stockholders acquired the Shares and Warrants or acquired an option to
purchase the Shares and Warrants.
During November 1995 the Company completed a private placement (the "Private
Placement") of Common Stock and Warrants in which Paramount Capital, Inc.
("Paramount") acted as placement agent. As compensation Paramount received from
the Company (i) cash commission in the amount of $313,650 , (ii) a non-
accountable expense allowance totaling $139,400 and (iii) an option to purchase
348,500 shares of Common Stock and 435,625 Warrants for an aggregate purchase
price of $479,188. In addition, the Company will pay Paramount an amount in
cash equal to 6% of the aggregate proceeds from any exercise of the Warrants,
and has entered into an agreement under which Paramount will act as a financial
consultant to the Company for at least a period of one year at a fee of $2,500
per month. Paramount assigned the purchase option to and among certain of the
persons listed in the above table.
Michael S. Weiss is a Director of the Company and an employee of Paramount.
Aries Financial Services, Inc., which is the General Partner and Investment
Manager, respectively, of Aries Domestic Fund, L.P. and The Aries Trust, is an
affiliate of Paramount. Lindsay A. Rosenwald is the Chairman of Paramount and
President of Aries Financial Services, Inc. Peter Kash, Scott Katzmann, Martin
Kratchman, Wayne L. Rubin and Karl Ruggeberg are employees of Paramount. Joseph
Edelman is an employee of Aries Financial Services, Inc.
Except for Mr. Weiss who became a Director of the Company following the
completion of the Private Placement, none of the Selling Stockholders has held
any position or office, or had any other material relationship with, the Company
during the past three years.
PLAN OF DISTRIBUTION
The number of Shares of the Common Stock and the number of Warrants to be
offered and sold by the Selling Stockholders, and the time of any such offers or
sales, have not yet been determined. 2,788,000 of the Shares of Common Stock
and 3,485,000 of the Warrants are subject to a lock-up agreement under which the
holders have agreed not to sell more than 25% of the respective securities prior
to May 27, 1996, nor more than 50% prior to August 27, 1996, nor more than 75%
prior to November 27, 1996 (see "Selling Stockholders"). The Company will not
receive any of the proceeds of the offering.
16
<PAGE>
The Shares and Warrants may be sold by the Selling Stockholders from time to
time in one or more transactions at market prices prevailing at the time of the
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may sell the Shares and Warrants offered
hereby (i) through brokers and dealers, (ii) on the American Stock Exchange in
the case of the Shares, (iii) any other exchanges upon which the Shares or
Warrants are listed, (iv) "at the market" to or through a market maker or into
an existing trading market and/or (v) in other ways not involving exchanges,
market makers or established trading markets, including direct sales to
purchasers. Additionally, the Shares and Warrants may also be publicly offered
through agents, underwriters or dealers. In such event the Selling Stockholders
may enter into agreements with respect to any such offering.
The Selling Stockholders and any dealers or agents that participate in the
distribution of Shares of the Common Stock and Warrants may be deemed to be
underwriters, and any profit on the sale of Shares of Common Stock and Warrants
by the Selling Stockholders and any discounts, commissions or concessions
received by any such dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act.
The sale of the Shares of Common Stock and Warrants by the Selling Stockholders
may also be effected from time to time by selling Shares or Warrants directly to
purchasers or to or through certain broker-dealers. In connection with any such
sale, any such broker-dealer may act as agent for the Selling Stockholders or
may purchase from the Selling Stockholders all or a portion of the Shares or
Warrants as principal and thereafter may resell any Shares or Warrants so
purchased. Sales by any such broker-dealer, acting as agent or as principal,
may be made pursuant to any of the methods described below. Such sales may be
made on the American Stock Exchange or other exchanges on which the Company's
Common Stock is then traded, on any exchange, if any, on which the Warrants are
traded, in the over-the-counter market, in negotiated transactions or otherwise
at prices and at terms then prevailing or at prices related to the then-current
market prices or at negotiated prices.
The Shares of Common Stock and Warrants offered under the Registration Statement
may also be sold in one or more of the following transactions: (i) block
transactions (which may involve crosses) in which a broker-dealer may sell all
or a portion of such Shares or Warrants as agent but may position and resell all
or a portion of the block as principal to facilitate the transaction; (ii)
purchases by any such broker-dealer for its own account pursuant to this
Prospectus; (iii) a special offering, and exchange distribution or a secondary
distribution in accordance with applicable stock exchange rules; and/or (iv)
ordinary brokerage transactions and transactions in which broker-dealers solicit
purchasers. In effecting sales, broker-dealers engaged by the Selling
Stockholders may arrange for other broker-dealers to participate. Broker-
dealers will receive commissions or other compensation from the Selling
Stockholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-
dealers may also receive compensation from purchasers of the Shares or Warrants,
which is not expected to exceed that which is customary in the types of
transactions involved.
The Selling Stockholders will pay all of the expenses incident to the offering
and sale of the Shares of the Common Stock and Warrants offered under this
Prospectus, including commissions and fees of dealers or agents. The Company
has paid or will pay all expenses related to the Registration Statement,
including registration fees and the fees of counsel or other experts retained by
the Company in connection with the registration.
17
<PAGE>
The Company has informed the Selling Stockholders that the anti-manipulative
Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934 may apply to
their sales in the market and informed each of them of the need for delivery of
copies of the Prospectus.
There is no assurance that the Selling Stockholders will sell any or all of the
shares of Common Stock or Warrants offered by them hereby.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock and 300,000 shares of Preferred Stock. All of the issued and
outstanding capital stock of the Company is fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorizes the issuance of 300,000
shares of Preferred Stock, $25.00 par value. The Preferred Stock may be issued
in series, the rights, preferences, and privileges of which may be determined by
the Board of Directors without further action by stockholders, which could
adversely affect the rights of stockholders. Currently no Preferred Stock is
outstanding.
COMMON STOCK
As of the date of this Prospectus there are currently 8,051,029 shares of the
Company's Common Stock outstanding, $.02 par value, owned of record by 452
holders. The holders of Common Stock (i) have equal and ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of the Company, (ii) are entitled to share ratably in all
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company and (iii)
do not have preemptive or subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. Each holder of Common
Stock is entitled to one vote per share for all purposes. The Board of
Directors is authorized to issue additional shares of Common Stock within the
limits authorized by the Company's charter without stockholder action.
WARRANTS
Exercise Price and Terms
Each Warrant entitles the holder thereof to purchase one share of Common Stock
at a price of $1.00 per share subject to adjustment in accordance with the
adjustment provisions referred to below. The Warrants may be exercised upon
surrender of the Warrant certificate on or prior to November 27, 2005 (or, if
redeemed prior thereto, the date immediately preceding the redemption date) at
the offices of the Warrant Agent, with the subscription form on the reverse side
of the Warrant certificate completed as indicated, accompanied by payment of the
full exercise price (by cashier's or certified check payable to the order of
the Warrant Agent, or by wire transfer) for the number of Warrants being
exercised. No fractional shares will be issued upon the exercise of the
Warrants, and the Company will pay cash in lieu of fractional shares. After
November 27, 2005, the Warrants will become void and of no value. If a market
for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
18
<PAGE>
The Company is required until November 27, 1998 under the terms of the
subscription agreements under which the Warrants were originally issued to have
a current, effective registration statement under the Securities Act on file
with the Securities and Exchange Commission (the "Commission") and to effect
appropriate blue sky qualifications in order to comply with applicable laws in
connection with the exercise of the Warrants and the resale of the Common Stock
issued upon such exercise. However, there can be no assurance that the Company
will be in a position to effect such action under the applicable Federal and
state securities laws, and the failure of the Company to effect such action may
cause the exercise of the Warrants, and the resale or other disposition of the
Common Stock issued upon such exercise to become unlawful.
The exercise price of the Warrants bears no relation to any objective criteria
of value and should in no event be regarded as an indication of any future
market price of any of the securities offered hereby.
Adjustment
The exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants are subject to adjustments upon the occurrence of
certain events, such as stock dividends or stock splits of the Common Stock.
Additionally, an adjustment would be made in the case of the reclassification
or exchange of the Common Stock, consolidation or merger of the Company with or
into another corporation or sale of all or substantially all of the assets of
the Company, in order to enable Warrant holders to acquire the kind and number
of shares of stock or other securities or property receivable in such event by
holder of the number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the Warrant. No adjustment to the exercise price
of the shares subject to the Warrants will be made for dividends (other than
dividends in the form of stock), if any, paid on the Common Stock.
Registration and Transfer
Transfers of the Warrants may only be made if pursuant to and in compliance with
applicable Federal and state securities laws and regulations and exemptions
therefrom, and only upon delivery to the Company of an opinion of counsel in
form and substance satisfactory to the Company that the proposed transfer is in
accordance with all applicable Federal and state securities regulations, and the
execution of the transferred Warrant certificate by the new holder.
Redemption
The Warrants are subject to redemption by the Company at $.10 per warrant on 60
days' prior written notice provided that the closing bid quotation for the
Common Stock as reported on the American Stock Exchange, or on such exchange on
which the Common Stock is then traded, exceeds 400% of the exercise price per
share for 20 consecutive trading days ending three days prior to the date of
redemption. The Warrants are not redeemable on or prior to November 27, 1996
unless the closing bid quotation for the Common Stock as reported on the
American Stock Exchange, or on such exchange on which the Common Stock is then
traded, exceeds 600% of the exercise price per share for 20 consecutive trading
days ending three days prior to the date of redemption.
19
<PAGE>
Warrant Holder Not a Stockholder
The Warrants do not confer upon holders thereof any voting or any other rights
of a stockholder of the Company. The shares of Common Stock issuable upon
exercise of the Warrants in accordance with the terms thereof, will be fully
paid and nonassessable.
STOCKHOLDERS' RIGHTS PLAN
In April 1991, the Company's Board of Directors adopted a stockholders' rights
plan. The plan, as amended, provides for the distribution of preferred stock
purchase rights to common stockholders which separate from the Common Stock ten
business days following: (a) an announcement of an acquisition by a person (or
group) ("Acquiring Party") of 15% or more of the outstanding common shares of
the Company, (b) the commencement of a tender offer or exchange offer for 15% or
more of the common shares, or (c) a merger or asset sale as defined in the
agreement. Under the agreement, certain related parties are not considered to
be an acquiring party. One right attached to each share of Common Stock
outstanding as of April 15, 1991 and attaches to all shares issued thereafter.
Each right entitles the holder to purchase one one-hundredth of one share of
Series R junior participating cumulative preferred stock, par value $25.00 per
share ("Unit of Preferred Stock"), at an exercise price of $120 per Unit of
Preferred Stock. The Units of Preferred Stock are non-redeemable, voting and are
entitled to certain preferential dividend and liquidation rights. The exercise
price and the number of Units of Preferred Stock issuable are subject to
adjustment to prevent dilution.
If, after the rights have been distributed, the Company is a party to a business
combination or other specifically defined transaction, each right (other than
those held by the Acquiring Party) will entitle the holder to receive, upon
exercise, Units of Preferred Stock or shares of Common Stock of the surviving
company with a value equal to two times the exercise price of the right.
Alternatively, a majority of the independent Directors of the Company may direct
the Company to exchange all of the then outstanding rights for Common Stock at
an exchange ratio of one common share per right. The rights expire April 15,
2001 and are redeemable (at the option of a majority of the independent
Directors of the Company) at $.01 per right at any time until the tenth day
following an announcement of the acquisition of 15% or more of the Company's
shares.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock and Warrants is the First Chicago Trust
Company of New York, Mail Suite 4691, P.O. Box 2533, Jersey City, NJ 07303-2533.
LEGAL OPINIONS
The validity of the Shares of Common Stock and Warrants offered hereby will be
passed upon for the Company and Selling Stockholders by Donovan, Leisure, Newton
& Irvine, 30 Rockefeller Plaza, New York, New York, 10112.
20
<PAGE>
EXPERTS
The consolidated financial statements of Xytronyx, Inc. and its subsidiary (the
"Company," a development stage enterprise) as of March 31, 1995 and 1994 and for
each of the three years in the period ended March 31, 1995, and for the period
from September 23, 1983 (date of incorporation of Xytronyx, Inc.) to March 31,
1995 incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which report contains an explanatory
paragraph referring to the Company's activities as those of a development stage
enterprise and to the Company's ability to continue as a going concern), which
is incorporated herein by reference, and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
21
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO BUY ANY OF THESE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........... 2
Incorporation of Certain
Documents by Reference.......... 2
Prospectus Summary.............. 3
Risks and Other Investment
Considerations.................. 7
Use of Proceeds................. 12
Selling Stockholders............ 13
Plan of Distribution............ 16
Description of Capital Stock.... 18
Legal Opinions.................. 20
Experts......................... 21
</TABLE>
3,136,500 SHARES OF
COMMON STOCK
($0.02 PAR VALUE)
3,920,625 WARRANTS
TO PURCHASE
COMMON STOCK
3,920,625 SHARES OF
COMMON STOCK
($0.02 PAR VALUE)
UNDERLYING WARRANTS
XYTRONYX, INC.
__________________
PROSPECTUS
__________________
DECEMBER 15, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All such expenses will be borne by the Registrant.
<TABLE>
<CAPTION>
Item Amount of Expenses
---- ------------------
<S> <C>
Securities and Exchange
Commission Registration Fees $ 3,853.03
Legal and Accounting Fees and Expenses 15,000.00
Transfer Agent's Fee 500.00
Miscellaneous 5,000.00
----------
Total $24,353.03
==========
</TABLE>
__________
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, who are
(or are threatened to be made) parties to any threatened, pending or completed
legal action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of their being directors or officers of such
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, he or she had no reasonable cause to
believe that his or her conduct was unlawful. The corporation may indemnify
directors and officers in a derivative action (in which suit is brought by a
stockholder on behalf of the corporation) under the same conditions, except that
no indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any such actions referred to
above, the corporation must indemnify him or her against the expenses and
attorneys' fees he or she actually and reasonably incurred.
The Sixth Article of the Registrant's Certificate of Incorporation, as
amended, provides for indemnification by the Registrant of its officers and
directors to the full extent allowed under Section 145 of the Delaware General
Corporation Law, and reads as follows:
II-1
<PAGE>
Sixth: A director of this Corporation shall not be personally liable to
the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director, except that this Article Sixth shall not
eliminate or limit a director's liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for a transaction from which the director
derived an improper personal benefit.
Any repeal or modification of the foregoing provision of this Article Sixth
shall not increase the personal liability of any director of this
Corporation for any act or occurrence taking place prior to such repeal or
modification, or otherwise adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or
modification.
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as amended from time to time,
indemnify all persons who are eligible for indemnification pursuant
thereto. The provisions of this Article Sixth shall not be deemed to limit
or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of
the Article Sixth.
Article VIII of the Registrant's Amended and Restated Bylaws provides for
indemnification by the Registrant of its officers and directors to the full
extent permitted under Section 145 of the Delaware General Corporation Law,
and reads as follows:
ARTICLE VIII: INDEMNIFICATION
Section 8.1. General. (a) The Corporation shall indemnify any person
-------
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonable believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that such person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he or she is or was a director,
II-2
<PAGE>
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorney's fees) actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnification of
such expenses which such Court of Chancery or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs (a) and (b) of
this Section 8.1, or in defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this Section 8.1
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
paragraphs (a) and (b) of this Section 8.1 (such person being referred to
herein as an "Indemnitee"). Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or
(iii) by the stockholders.
(e) Any Indemnitee shall be entitled to control the defense of any
action, suit or proceeding against him or her which may give rise to a
right of indemnification pursuant to this Article VIII, provided, however,
-------- -------
that the Corporation shall select counsel to conduct such defense, which
counsel shall be reasonably acceptable to the Indemnitee. In the event
that an Indemnitee and other parties indemnified by the Corporation (such
Indemnitee and other parties indemnified being herein referred to
collectively as the "Indemnified Parties") are made or threatened to be
made parties to the same or similar threatened, pending or completed
action, suit or proceeding, the Indemnified Parties shall not be entitled
to separate counsel unless the counsel selected by the Corporation advises
the Corporation that there exists such material conflicts of interests
among some or all of the Indemnified Parties so as to require separate
representation for some or all of the Indemnified Parties, and such counsel
advises the Corporation of the basis for such conflict and the group of
Indemnified Parties so affected. Upon receipt of such advice of counsel,
the Corporation shall select separate counsel for such group of Indemnified
Parties, which counsel shall be reasonably acceptable to such group.
(f) Expenses (including attorneys' fees) incurred by a director or
officer in defending any civil, criminal, administrative or investigative
II-3
<PAGE>
action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation pursuant to this Article VIII. Such
expenses (including attorney's fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
an official capacity and as to action in another capacity while holding
such office.
(h) For purposes of the Article VIII, references to the "Corporation"
shall include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or
surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this Article VIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employees benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VIII.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
Section 8.2. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against such
liability under the provisions of Section 145 of the General Corporation
Law of the State of Delaware.
II-4
<PAGE>
Under a policy of insurance, the Company is entitled to be reimbursed for
indemnity payments it is required or permitted to make to its directors and
officers. In addition, the Registrant's officers and directors are covered by
certain directors' and officers' liability insurance policies maintained by the
Registrant.
The Registrant has entered into Indemnity Agreements with its directors and
its officers which provide that the Registrant will pay any reasonable amount
which an Indemnitee is legally obligated to pay because of claims which may be
made against such Indemnitee by reason of the fact that such Indemnitee is or
was a director or officer of the Registrant, or is or was serving at the request
of the Registrant as a director or officer of some other entity. However, no
indemnification is provided in cases involving dishonesty or improper personal
profit. The payments to be made under such Indemnity Agreements include the
amounts of all reasonable expenses, judgments, fines, and amounts paid in
settlement, except that the Registrant is not obligated to pay fines or other
fees imposed by law which the Registrant is prohibited by law from paying as an
indemnity of for any other reason.
ITEM 16. EXHIBITS.
4.1 Form of Subscription Agreement between Company and certain Selling
Stockholders. (1)
4.2 Form of Lock-Up Agreement between Company and certain Selling
Stockholders. (1)
4.3 Form of placement agent agreement between Company and Paramount
Capital, Inc. (1)
5.1 Opinion of Donovan Leisure Newton & Irvine regarding the legality of
the Shares of Common Stock and Warrants. (1)
24.1 Consent of Donovan Leisure Newton & Irvine incorporated by reference
to Exhibit 5 hereof. (1)
24.2 Consent of Deloitte & Touche LLP. (1)
25.1 Powers-of-Attorney for each person executing this Registration
Statement, see signature page hereof.
_____________
(1) Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
II-5
<PAGE>
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration Statement:
(i) to include any prospectus required by Section 10 (a) (3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
Plan of Distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
Provided, however, that paragraphs (i) and (ii) do not apply to this
-------- -------
Registration Statement if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15 (d) of the Securities
Exchange Act of 1934 and incorporated by reference in this Registration
Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13 (a) or section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in the first paragraph of
Item 15 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange commission such indemnification is against public
policy as expressed in said Securities Act and is, therefore, unenforceable. In
the event that as claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
II-6
<PAGE>
officer or controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on December 15, 1995.
XYTRONYX, INC.
By: /s/ DALE A. SANDER
--------------------
Dale A. Sander,
Vice President of Finance and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dale A. Sander and Larry O. Bymaster, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
OFFICERS
/s/ LARRY O. BYMASTER President and December 15, 1995
- ------------------------ Chief Executive Officer
Larry O. Bymaster (Principal Executive Officer)
/s/ DALE A. SANDER Vice President of Finance, and December 15, 1995
- ------------------------ Chief Financial Officer
Dale A. Sander (Principal Accounting Officer and
Principal Financial Officer)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
BOARD OF DIRECTORS
/s/ LARRY O. BYMASTER Chairman of the Board and December 15, 1995
- ---------------------------- Director
Larry O. Bymaster
/s/ H. LAWRENCE GARRETT, III Director December 15, 1995
- ----------------------------
H. Lawrence Garrett, III
/s/ JACK H. HALPERIN Director December 15, 1995
- ----------------------------
Jack H. Halperin
/s/ WILLIAM L. JORGENSON Director December 15, 1995
- ----------------------------
William L. Jorgenson
/s/ JOHN M. KOLBAS Director December 15, 1995
- ----------------------------
John M. Kolbas
/s/ PAUL E. PRICE Director December 15, 1995
- ----------------------------
Paul E. Price
/s/ ELLIOTT H. VERNON Director December 15, 1995
- ----------------------------
Elliott H. Vernon
/s/ MORRIS S. WEEDEN Director December 15, 1995
- -----------------------------
Morris S. Weeden
/s/ MICHAEL S. WEISS Director December 15, 1995
- -----------------------------
Michael S. Weiss
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- -----------
<C> <S>
4.1 Form of Subscription Agreement between Company and certain
Selling Stockholders......................................
4.2 Form of Lock-Up Agreement between Company and certain
Selling Stockholders......................................
4.3 Form of placement agent agreement between Company and
Paramount Capital, Inc. ..................................
5 Opinion of Donovan Leisure Newton & Irvine regarding
the legality of the Shares of Common Stock and Warrants...
24.1 Consent of Donovan Leisure Newton & Irvine incorporated
by reference to Exhibit 5 hereof..........................
24.2 Consent of Deloitte & Touche LLP..........................
</TABLE>
II-10
<PAGE>
Exhibit 4.1
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on
the signature page hereof between Xytronyx, Inc., a Delaware corporation, (the
"Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company desires to issue an aggregate of up to 25 units (the
"Units") in a minimum/maximum private placement offering (the "Offering") of 10
Units with aggregate gross proceeds of $1,000,000 in the case of the minimum
offering and 25 Units with aggregate gross proceeds of $2,500,000 in the case of
the maximum offering, with each Unit consisting of 80,000 shares of Common
Stock, par value of $.02 per share of the Company ("Common Stock") and warrants
to purchase 100,000 shares of Common Stock, (the "Warrants"). The Units, Common
Stock and Warrants are sometimes collectively referred to herein as the
"Securities." Each Warrant is exercisable for a period of 10 years from the
Final Closing Date (as defined below) to purchase one share of Common Stock at a
price of $1.00 per share. The Company desires to offer the Units on the terms
and conditions hereinafter set forth, and the subscriber desires to acquire that
number of Units set forth on the signature page hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
1. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units as is set forth upon the signature page hereof at a price
equivalent to $100,000 per Unit and the Company agrees to sell such Units to the
Subscriber for said purchase price. The terms of the Warrants are set forth in
the form of Warrant to Purchase Common Stock attached as an exhibit to the
Confidential Private Placement Memorandum (the "Memorandum"). The purchase
price is payable by personal or business check, wire transfer of immediately
available funds or money order made payable to "NatWest Bank, USA, Escrow Agent
F/B/O Xytronyx, Inc." contemporaneously with the execution and delivery of this
Agreement. The certificates for shares of Common Stock and the Warrants
constituting the Units will be delivered by the Company in accordance with the
terms set forth in Article III, Section 3.2 hereof. The Subscriber understands,
however, that the purchase of Units is contingent upon the acceptance of this
Subscription Agreement by the Company and sales (against cleared funds) of at
least 10 Units prior to the Termination Date as defined in Article III, Section
3.1 hereof.
1.2 The Subscriber hereby acknowledges receipt of the Memorandum and that
the Subscriber has carefully reviewed the Memorandum. The Subscriber recognizes
that the purchase of Units involves a high degree of risk in that (i) the
Company remains a development stage business with limited operating history and
may require substantial funds in addition to the proceeds of the Offering; (ii)
an investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to liquidate his
investment; (iv) transferability of the Securities underlying the Units is
extremely limited; and (v) in the event of a
1
<PAGE>
disposition, the Subscriber could sustain the loss of his entire investment, as
well as the other risk factors set forth in the Memorandum.
1.3 The Subscriber represents that Subscriber is an "accredited investor"
as such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"), as indicated by his responses to
the questions contained in Article VII hereof, and that Subscriber is able to
bear the economic risk of an investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i) Subscriber
has prior investment experience, including investment in non-listed and
unregistered securities, or Subscriber has employed the services of an
investment advisor, attorney and/or accountant to read all of the documents
furnished or made available by the Company both to Subscriber and to all other
prospective investors in the Units and to evaluate the merits and risks of such
an investment on Subscriber's behalf; and (ii) Subscriber recognizes the highly
speculative nature of this investment.
1.5 The Subscriber hereby represents that the Subscriber either (i) has a
preexisting personal or business relationship with the Company or its respective
officers or directors or (ii) by reason of the Subscriber's business or
financial experience or the business or financial experience of the Subscriber's
professional advisors (who are unaffiliated with and who are not compensated by
the Company of any affiliate or selling agent of the Company, including the
Placement Agent, directly or indirectly) has the capacity to protect the
Subscriber's own interest in connections with the transaction contemplated
hereby.
1.6 The Subscriber hereby represents that (i) Subscriber has been
furnished by the Company during the course of this transaction with all
information regarding the Company which Subscriber has requested or desired to
know; (ii) Subscriber has been afforded the opportunity to ask questions of and
receive answers from duly authorized officers or other representatives of the
Company concerning the terms and conditions of the Offering; and (iii)
Subscriber has received any additional information which Subscriber has
requested.
1.7 The Subscriber hereby acknowledges that the offering of Units and the
Securities underlying such Units has not been reviewed by the United States
Securities and Exchange Commission (the "Commission") or any state regulatory
authority, since the Offering is intended to be exempt from the registration
requirements of Section 5 of the Act pursuant to Regulation D promulgated under
the Act. The Subscriber agrees that Subscriber will not sell or otherwise
transfer the Securities unless they are registered under the Act or unless an
exemption from such registration is available and until such Subscriber complies
with the transfer restrictions set forth in Section 1.9 hereof.
1.8 The Subscriber hereby represents that Subscriber is purchasing the
Units for Subscriber's own account for investment and not with a view toward
resale or distribution of the Units, the underlying Common Stock or the
Warrants.
1.9 The Subscriber understand that even though a public market exists for
the Common Stock, Rule 144 ("Rule 144") promulgated under the Act requires,
among other conditions, a two-year holding period prior to the resale (in
limited amounts) of securities acquired in a non-public offering without having
to satisfy the registration requirements under the Act. The Subscriber consents
that the Company may, if it desires, permit the transfer of its Securities,
subject to the provisions of applicable law, out of Subscriber's name only when
his request for
2
<PAGE>
transfer is accompanied by an opinion of counsel reasonable satisfactory to the
Company that neither the sale nor the proposed transfer results in a violation
of the Act or any applicable state securities or "blue sky" laws. The Subscriber
agrees to hold the Company and its respective directors, officers, agents and
controlling persons and their respective heirs, representatives, successors, and
assigns harmless and to indemnify them against all liabilities, costs and
expenses incurred by them as a result of any misrepresentation made by such
Subscriber contained herein or in the Confidential Purchaser Questionnaire
contained in Article VI hereof or any sale or distribution by the undersigned
Subscriber in violation of the Act or any applicable state securities or "blue
sky" laws.
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Common Stock, the Warrants or the
Common Stock issuable upon conversion or exercise thereof, stating that such
Securities have not been registered under the Act or any state securities or
"blue sky" laws and setting forth or referring to the restriction on
transferability and sale thereof contained in this Agreement. The Subscriber is
aware that the Company will make a notation in its appropriate records with
respect to the restrictions on the transferability of such securities.
1.11 The Subscriber understands that the Company will review this
Agreement and is hereby given authority by the Subscriber to call Subscriber's
bank or place of employment or otherwise review the financial standing of the
Subscriber; and it is further agreed that the Company reserves the unrestricted
right to reject or limit any subscription and to close the Offering to the
Subscriber at any time.
1.12 The Subscriber hereby represents that the address of the Subscriber
furnished by Subscriber on the signature page hereof is the Subscriber's
principal residence if Subscriber is an individual, or its principal business if
it is a corporation or other entity.
1.13 The Subscriber acknowledges that if he is a Registered Representative
of an NASD member firm, he must give such firm the notice required by the NASD's
Rules of Fair Practice, receipt of which must be acknowledged by such firm in
Section 9 below.
2. REPRESENTATIONS BY, AND COVENANTS OF, THE COMPANY
2.1 The Company represents, warrants and, where applicable, covenants to
the Subscriber that prior to the consummation of the Offering and at the
Termination Date as defined in Article III, Section 3.1 hereof:
(a) Organization. The Company is a corporation duly organized and
------------
validly existing under the laws of the State of Delaware and is in good standing
under such laws. The Company has requisite corporate power and authority to
own, lease and operate its properties and assets, and to carry on its business
as presently conducted and as proposed to be conducted. The Company is
qualified to do business as a foreign corporation in each jurisdiction in which
the ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company.
(b) Capitalization. The authorized, issued and outstanding capital
--------------
stock, including option, warrants and other contractual rights to purchase
capital stock of the Company is as set forth in the Confidential Private
Placement Memorandum dated September 12, 1995 (the
3
<PAGE>
"Memorandum"). Except as provided or described in the Memorandum, there are no
options, warrants, conversion privileges or other contractual rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities.
(c) Authorization. The Company has all corporate right, power and
-------------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of Securities contemplated hereby, and the performance of
the Company's obligations hereunder has been taken. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy. Upon the issuance and delivery of the Common Stock to be
issued pursuant to the purchase of the Units as contemplated by this Agreement,
and the Common Stock to be issued upon exercise of the Warrants, the Common
Stock will be validly issued, fully paid and nonassessable. The issuance and
sale of the Securities contemplated hereby will not give rise to any preemptive
rights or rights of first refusal on behalf of any person. The Company has
reserved for issuance upon purchase of the Units and exercise of the Warrants
such number of its authorized but unissued shares of Common Stock deliverable
upon purchase of the Units and exercise of the Warrants as will be sufficient to
permit the sale of the maximum number of Units and exercise in full of the
Warrants.
(d) No Conflict. Subject to compliance with such filings as may be
-----------
required to be made with the Securities and Exchange Commission ("SEC"), any
state or foreign securities regulatory authority, any stock exchange, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not result in any violation of, or default
(with or without notice of lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any material obligation or to a
loss of a material benefit, under, any provision of the Amended and Restated
Certificate of Incorporation or Bylaws of the Company or any mortgage,
indenture, lease or other agreement or instrument, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company,
its properties or assets, the effect of which would have a material adverse
effect on the Company, its financial condition, results of operation or
prospects, or materially impair or restrict its power to perform its obligations
as contemplated hereby.
(e) Exchange Act Reports. All material reports required to be filed
--------------------
by the Company within the two years prior to the date of this Agreement under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") have been
duly filed with the SEC, complied at the time of filing, in all material
respects with the requirements of their respective forms, and, except to the
extent updated or superseded by the Memorandum or any subsequently filed report,
were complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
4
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(f) Registration Rights. Except as set forth in this Agreement, the
-------------------
Company is not under any obligation to register any of its presently outstanding
securities or any of its securities which may hereafter be issued other than
under (i) the Settlement Agreement dated June 11, 1994, (ii) the Stock Option
Agreement with Larry Bymaster dated August 11, 1994, and (iii) the Consulting
Agreement with Dr. Peter Baram dated November 30, 1995.
(g) Governmental Consents, etc. No consent, approval or authorization
---------------------------
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the execution and delivery of
this Agreement, the offer, sale or issuance of the Units, or the consummation of
any other transaction contemplated hereby, except such filings as may be
required to be made with the SEC, the American Stock Exchange and with any state
or foreign blue sky or securities regulatory authority.
(h) Litigation. There is no litigation, arbitration, governmental or
----------
other proceeding (formal or informal) or claim or investigation pending of which
the Company has notice or, to the knowledge of the Company, threatened with
respect to the Company or any of its operations, businesses, properties or
assets and the Company is not in violation of, or in default with respect to,
any law, rule, regulation, order, judgment or decree; except for such matters
that, individually or in the aggregate, would not have a material adverse effect
on the Company.
(i) Investment Company. The Company is not an "Investment Company"
------------------
within the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the SEC thereunder.
(j) Intellectual Property. With respect to each of the Company's
---------------------
material patents and patent applications licensed, used or applied for by the
Company in connection with the operation of the Company's business (collectively
the "Intangibles"), (i) the Company has all licenses or rights which it believes
are necessary to use the Intangibles, (ii) to the Company's knowledge, the
inventor(s) named in each of the patents and patent applications comprising the
Intangibles are the only inventor(s) of the subject matter claimed in such
Intangibles and (iii) to the Company's knowledge, no adverse claim of ownership
has been asserted or threatened against the Company with respect to the subject
matter claimed in the Intangibles except as set forth in the Memorandum. To the
Company's knowledge, the Company has not infringed nor is it infringing with
respect to Intangibles of others and the Company has not received notice of
infringement with respect to Intangibles of others.
(k) Regulatory Filings. The Company believes that it has the
------------------
authority to conduct its operations as presently described in the Memorandum;
however, the Company has not filed with the Food and Drug Administration (the
"FDA") for or received approval of any registrations, applications, licenses,
requests for exemptions, permits and other regulatory authorizations necessary
to commercially market the current version of the Periodontal Tissue Monitor
product in the United States.
(l) Private Offering Memorandum; Disclosure. No information set forth
---------------------------------------
in the Memorandum or otherwise provided by the Company to the Subscribers in
connection with their purchase of the Securities contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
5
<PAGE>
(m) Open Market Purchases. The Company (a) has not during the 60 days
---------------------
prior to the date hereof, directly or indirectly, through related parties or
otherwise, purchased any equity securities of the Company and (b) will not,
directly or indirectly, through related parties or otherwise, purchase any
equity securities of the Company during the 30 trading days prior to the Closing
Date.
3. TERMS OF SUBSCRIPTION
3.1 The subscription period will terminate at 11:59 p.m., New York City
time November 18, 1995, unless extended by the Company for an additional period
not to exceed 60 days (the "Termination Date"). Ten (10) Units are being
offered on a "best efforts, all-or-none" basis, and the remaining fifteen (15)
Units are being offered on a "best efforts" basis. It is anticipated that the
minimum subscription per Subscriber shall be one Unit. However, the Company
reserves the right to accept partial Units.
3.2 If subscriptions are received for purchases aggregating at least
$1,000,000 (10 Units) on or prior to the Termination Date, then an initial
closing will take place (the "Initial Closing"). The Subscriber understands
that if Subscriptions are received for less than 10 Units, or if this
Subscription is not accepted, any amount received from the Subscriber will be
returned to the Subscriber. Delivery of certificates for the shares of Common
Stock and the Warrants to be purchased pursuant to this Agreement shall be made
by the Company at such initial closing against payment of the purchase price
therefore by the Subscriber by personal or business check, wire transfer of
immediately available funds or money order made payable to "NatWest Bank, USA,
Escrow Agent F/B/O Xytronyx, Inc." In the event that such initial closing
relates to subscriptions for purchases aggregating less than $2,500,000, the
Company may hold subsequent closings (the "Subsequent Closings") until
subscriptions have been received for purchases aggregating up to $2,500,000.
Delivery of certificates for the shares of Common Stock and the Warrants to be
purchased pursuant to this Agreement shall be made by the Company at such
Subsequent Closing against appropriate payment of the purchase price therefor.
4. REGISTRATION.
4.1 For purposes of this Section 4 of this Agreement:
(a) The term "Securities" for purposes of this Section 4 only means
(i) the Common Stock purchased pursuant to the Subscription Agreement, or
issuable upon exercise of the Warrants, (ii) the Warrants and (iii) any Common
Stock issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of the Securities
referenced in (i) above and in this subparagraph (ii), excluding in all cases
(x) any Securities sold by a person in a transaction in which his rights under
this Section 4 are not assigned or are assigned in violation of this Agreement
and (y) any Securities that have already been registered under the Act or which
are freely transferable without registration under the Act due to the lapse of
time or otherwise and which are not subject to any sales volume limitation under
Rule 144 (as hereafter defined) based on the Investor's holding's of Securities.
(b) The term "Holder" means any person owning or having the right to
acquire Securities or any assignee thereof in accordance with Subsection 4.10
hereof.
6
<PAGE>
(c) The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document under the Act, and the declaration or order of effectiveness of
such registration statement or document.
(d) The "Final Closing Date" means the date of last sale of all Units
offered under this Agreement.
4.2 The Company agrees it shall use its best efforts within the earlier of
(a) a 60-day period after the Initial Closing or (b) a 30-day period after the
Final Closing Date to prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement (the "Registration Statement")
in compliance with the Act and the rules and regulations thereunder to register
the Securities under the Act. The Registration Statement shall be on Form S-3,
or if such form shall be unavailable for such registration, on such other form
as is prescribed under the Act.
4.3 The Company shall use its best efforts to effect the registration of
the Securities as expeditiously as reasonably possible:
(a) The Company shall use its best efforts to cause the Registration
Statement to become and remain effective until the Securities covered by the
Registration Statement have been sold, and prepare and file with the SEC such
amendments and supplements to the Registration Statement and the prospectus
contained therein as may be necessary to keep the Registration Statement
effective and the Registration Statement and prospectus accurate and complete
until the Securities covered by the Registration Statement have been sold;
provided, however, that the Company shall not be required to cause any
registration statement to remain effective for more than three (3) years from
its effective date.
(b) The Company shall use its best efforts to furnish to Holder such
quantities of the preliminary prospectus, final prospectuses, the Registration
Statement and each amendment and supplement thereto, and such other documents as
they may reasonably request in order to facilitate the public offering of such
securities.
(c) The Company shall use its best efforts to register or qualify the
Securities covered by the Registration Statement under such state securities or
blue sky law of such jurisdictions as the Holder may reasonably request
following the Final Closing Date, except that the Company shall not be required
for any purpose to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified or to execute a general consent to
service of process in any such states or jurisdiction.
(d) The Company shall notify the Holder, promptly after it shall
receive notice thereof, of the date and time when the Registration Statement and
each posteffective amendment thereto has become effective or a supplement to any
prospectus forming a part of the Registration Statement has been filed.
(e) The Company shall prepare and file with the SEC, promptly upon the
request of the Holder, any amendments or supplements to the Registration
Statement or prospectus which, in the opinion of counsel for the Holder, is
required under the Act or the rules and regulations thereunder in connection
with the distribution of the Securities by the Holder; provided, however, that
the Company may postpone for a period not exceeding 90 days the filing of such
amendments and supplements if at the time it receives such request the Company
is in possession
7
<PAGE>
of material non-public information that the Company determines would be
detrimental to its interests if disclosed at such time and which the Company is
otherwise entitled not to disclose under applicable law.
(f) The Company shall prepare and file promptly with the SEC, and
promptly notify the Holder of the filing of, such amendments or supplements to
the Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event has occurred the
result of which would be that any such prospectus or any other prospectus then
in effect would include an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statement therein not misleading.
(g) In case the Holder is required to deliver a prospectus at a time
when the prospectus then in circulation is not in compliance with the Act or the
rules and regulations thereunder, the Company shall prepare promptly upon
written request of the Holder such amendments or supplements to the Registration
Statement and such prospectus as may be necessary in order for such prospectus
to comply with the requirements of the Act and such rules and regulations.
(h) The Company shall advise the Holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order shall have been issued.
(i) The Company shall make available for inspection upon reasonable
request of the Holder, and by any attorney, accountant or other agent, retained
by the Holder, such information in connection with the Registration Statement as
is necessary for the Holder to discharge its due diligence obligations under the
Act, if any; provided, however, that the Holder shall be obligated prior to such
inspection to provide assurances in form satisfactory to the Company that the
Company's confidential and proprietary data, information and know-how shall not
be divulged.
4.4 Furnish Information:
-------------------
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement that the Holder shall
furnish and agree to furnish in the future to the Company such information
regarding it, the Securities held by it, and the intended method of disposition
of such securities as the Company shall reasonably request from time to time and
as shall be required by the Company or by the SEC in connection with any action
to be taken by the Company. Holder hereby agrees to furnish such information.
(b) The Company shall advise the Holders:
(i) when the Registration Statement or any amendment thereto has
been filed with the Commission and when the registration statement or any post-
effective amendment thereto has become effective;
8
<PAGE>
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(v) of the happening of any event that requires the making of any
changes in the Registration Statement or the prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under
which they were made) not misleading;
(c) The Company shall make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time;
(d) The Company shall furnish to each Holder, without charge, at least
one copy of such Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits (including those incorporated by references)
in the form filed with the Commission;
(e) The Company shall, during the Registration Period, deliver to each
Holder, without charge, (i) as soon as practicable (but in the case of the
annual report of the Company to its stockholders, within 120 days after the end
of each fiscal year of the Company) one copy of: (A) its annual report to its
stockholders (which annual report shall contain financial statements audited in
accordance with generally accepted accounting principles in the United States of
America by a firm of certified public accountants of recognized standing); (B)
if not included in substance in its annual report to stockholders, its annual
report on Form 10-K SB (or similar form); (C) each of its quarterly reports to
its stockholders, and, if not included in substance in its quarterly reports to
stockholders, its quarterly report on Form 10-Q SB (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(f) The Company shall prior to any public offering of Registrable
Securities pursuant to any Registration Statement, register or qualify for offer
and sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing, and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions of the
Registrable Securities covered by such Registration Statement;
(g) The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends to the extent not required at such time
9
<PAGE>
and in such denominations and registered in such names as Holders may request at
least two business days prior to sales of Registrable Securities pursuant to
such Registration Statement;
(h) The Company shall upon the occurrence of any event contemplated by
paragraph (i)(E) above, the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter delivered
to purchasers of the Registrable Securities included therein, the prospectus
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(i) The Company shall use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and will make generally
available to the Holders not later than 45 days (or 90 days if the fiscal
quarter is the fourth fiscal quarter) after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of Section
11(a) of the Act.
4.5 Expenses of Registration: The Company shall pay the expenses of
------------------------
the registration pursuant to this Section 4 other than legal fees of the
Holder's counsel and sales commissions attributable to the Securities sold by
it. The fees, costs and expenses of registration to be borne by the Company as
provided in this Subsection 4.5, shall include, without limitation, all
registration, filing and American Stock Exchange fees, printing expenses, fees
and disbursements of counsel and accountants retained by the Company in
connection with the registration of such securities, all disbursements and other
expenses of complying with state securities laws of states where the securities
are to be registered or qualified.
4.6 Indemnification:
---------------
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Holder and each of the Holder's officers, directors, partners,
legal counsel and accountants, and each person or entity, if any, who controls
the Holder within the meaning of the Act, against any losses, claims, damages,
or liabilities, joint or several, to which they may become subject under the Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based on any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; and will
reimburse the Holder, and each such officer, director, partner, legal counsel,
accountant, or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Subsection 4.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in connection with the Registration
Statement,
10
<PAGE>
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by the Holder, or such officer,
director, partner, legal counsel, accountant or controlling person. The
foregoing consent shall not be deemed to be unreasonably withheld, if it is
withheld in respect of a proposed settlement that does not provide for a release
of the Company.
(b) To the extent permitted by law, the Holder will indemnify and hold
harmless the Company, its directors, officers, legal counsel and accountants and
each person or entity who controls the Company within the meaning of the Act
against any losses, claims, damages, or liabilities to which the Company or any
such director, officer, legal counsel, accountants or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by the Holder expressly for use in
connection with such registration; and the Holder will reimburse any legal or
other expenses reasonably incurred by the Company or such director, officer,
legal counsel, accountants or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Subsection
4.6(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld). A consent
shall not be deemed to be unreasonably withheld, if it is withheld in respect
of a proposed settlement that does not provide for a release of the Holder.
(c) Promptly after receipt by an indemnified party under this
Subsection 5.5 of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Subsection 4.6, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to his
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Subsection 4.6, but the omission
to so notify the indemnifying party will not relieve him of any liability that
he may have to any indemnified party otherwise than pursuant to this Subsection
4.6.
(d) (i) If the indemnification provided for in Subsections 4.6(a) or
4.6(b) is held by a court of competent jurisdiction to be unavailable to a party
to be indemnified with respect to any claims, actions, demands, losses, damages,
liabilities, costs or expenses referred to therein, then each indemnifying party
under any such Subsection, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or payable by such
indemnified party as a result of such claims, actions, demands, losses, damages,
liabilities, costs or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party
11
<PAGE>
on the one hand and of the indemnified party on the other in connection with the
statement or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(ii) No person guilty of fraudulent misrepresentation (within the
meaning of Section II(f) of the Securities Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
4.7 Termination of the Company's Obligations: The Company's
----------------------------------------
obligations pursuant to this Section 4 shall expire upon the expiration of three
(3) years following the effective date of the Registration Statement.
4.8 Reports Under Exchange Act: With a view to making available to
--------------------------
the Holder the benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the SEC that may at any time permit the Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(c) so long as a Holder owns any unregistered Securities, furnish
to such Holder upon any reasonable request a written statement by the Company as
to its compliance with Rule 144 under the Act, and of the Exchange Act, a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing a Holder to sell
any such securities without registration.
4.9 Delay of Registration by Holder. No Holder shall have any right
-------------------------------
to obtain or seek injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
4.10 Delayed Effective Date. In the event that the Registration
----------------------
Statement is not declared effective within 60 days of the latest date which the
Registration Statement was required to be filed pursuant to Paragraph 4.2, then
the Company shall issue to the Purchaser such additional shares of Common Stock
as equal to 5% of the Common Stock underlying the Units subscribed for hereunder
for each 30-day period or portion thereof following such date during which the
Registration Statement is not effective, up to a maximum of 15% of the Common
Stock underlying the Units subscribed for hereunder.
4.11 Transfer of Right.
-----------------
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(a) The rights granted to the Holder pursuant to Section 1 may
not be transferred or assigned, excepts that such rights are assignable to
anyone who acquires at least such number of shares of Securities consisting of
at least eighty percent (80%) of the aggregate number of shares of Securities
purchased by the Holder, provided, however, that the Company is given written
notice by the transferee at the time of any permitted transfer stating the name
and address of the transferee and identifying the shares of Securities with
respect to which such rights are being assigned.
(b) Notwithstanding anything to the contrary herein, if the
Holder is a partnership, it may transfer rights granted pursuant to this Rights
Agreement to any of its partners to whom Securities are transferred. In the
event of such transfer, such partner shall be deemed to be the Holder of such
shares of Common Stock and may, subject to paragraph (a) above, again transfer
such right to any other person or entity which acquired such Securities from
such partner.
4.12 Conditions to Obligations of the Subscribers.
--------------------------------------------
(a) The Subscribers' obligation to purchase the Shares at each
Closing is, at the option of each Subscriber, which may waive any such
conditions to the extent permitted by law, subject to the fulfillment on or
prior to the Closing Date in question of the following conditions:
(b) The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date in
question with the same force and effect as if they had been made on and as of
said date.
(c) All covenants, agreements and conditions contained in the
Agreement to be performed by the Company on or prior to such purchase shall have
been performed or complied with in all material respects.
(d) The Company shall have filed for approval for listing on
AMEX the maximum number of Conversion Shares as shall be required for issuance
upon the conversion of the Shares and Warrants sold at the Closing Date in
question.
(e) There shall not then be in effect any legal or other order
enjoining or restraining the transactions contemplated by this Agreement.
(f) There shall not be in effect any law, rule or regulation
prohibiting or restricting such sale or requiring any consent or approval of any
person which shall not have been obtained to issue the Shares (except as
otherwise provided in this Agreement).
(g) The Company shall have received binding subscriptions for at
least $1,000,000 in Units in connection with the Initial Closing.
(h) On the Closing Date in question, Counsel to the Company
shall have delivered to the Agent for the benefit of the Agent and the
Subscribers, a legal opinion to such effect with respect to legal matters
relating to this Agreement and the Memorandum as the Agent may require.
13
<PAGE>
(i) On the Closing Date in question, if requested by the Agent,
the Company's auditors shall have delivered to the Agent for the benefit of the
Agent and the Subscribers, a comfort letter to such effect as the Agent may
require.
(j) Prior to the Initial Closing, the Company shall have
delivered to the Agent a draft copy of the Registration Statement, in form and
substance reasonably satisfactory to the Agent.
5. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefore,
addressed to Xytronyx, Inc. 6555 Nancy Ridge Drive, Suite 200, San Diego, CA
92121, Attention: Chief Financial Officer, and to the Subscriber at his address
indicated on the signature page of this Agreement. Notices shall be deemed to
have been given or delivered on the date of mailing, except notices of change of
address, which shall be deemed to have been given or delivered when received.
5.2 This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
5.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assignees. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understanding of any and every nature
among them.
5.4 Upon the execution and delivery of the Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber with respect
to the purchase of Securities as herein provided; subject, however, to the right
hereby reserved to the Company to enter into the same agreements with other
subscribers and to add and/or delete other persons as subscribers.
5.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
5.6 In order to discourage frivolous claims the parties agree that unless
a claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other parties
to the action), then the other party shall be entitled to recover from such
claimant all of its/their reasonable legal costs and expenses relating to such
proceeding and /or incurred in preparation therefor.
5.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall
14
<PAGE>
remain in full force and effect. If any provision of this Agreement shall be
declared by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in whole or in part, such provision shall be
interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provisions
unless so expressed herein.
5.8 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
5.9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further actions as may be
necessary or appropriate to carry out the purposes and intent of the Agreement.
5.10 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
5.11 THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
6. NOTICE TO, AND REPRESENTATIONS AND COVENANTS OF CERTAIN STATE RESIDENTS
6.1 Pennsylvania Residents: The undersigned hereby acknowledges that the
Company is relying upon the exemption from registration of securities set forth
in Section 203(d) of the Pennsylvania Securities Act of 1972, as amended (the
"Pennsylvania Act") in connection with the sale of the Securities to the
undersigned.
In accordance with the requirements of the Pennsylvania Act, the
undersigned hereby acknowledges and agrees that (a) the Securities purchased
cannot be sold for a period of twelve (12) months from the date of purchase,
except as permitted under Section 204.011 of the Pennsylvania Securities
Regulations, and (b) pursuant to Section 207(m) of the Pennsylvania Act, each
Pennsylvania resident who accepts an offer to purchase securities exempted from
registration under Section 203(d) of the Pennsylvania Act has the right to
withdraw his or her acceptance without incurring any liability to the Company,
the Placement Agent or any other person within two (2) business days from the
date of receipt by the Company of this Agreement.
6.2 Alabama Residents: The undersigned represents that he or she, either
alone or with the undersigned's representative, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of investment in the Securities.
15
<PAGE>
6.3 Massachusetts Residents: If the undersigned is a natural person, he
or she represents that his or her investment in these Securities does not exceed
25% of his or her net worth or joint net worth with spouse (excluding principal
residence and its furnishings).
6.4 Maryland Residents: The undersigned acknowledges and agrees that
these Securities will not be sold without registration under the Maryland
Securities Act or exemption therefrom.
6.5 Missouri Residents: The undersigned acknowledges that these
Securities are not registered under the Missouri Securities Act and may be
disposed of only through a registered broker-dealer in Missouri. The
undersigned also acknowledges that it is a felony to sell securities in
violation of the Missouri Securities Act.
6.6 Wisconsin Residents: The undersigned represents that he or she,
either alone or with his or her representative, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of investment in the Securities.
6.7 Arkansas Residents: The undersigned hereby represents that his net
worth set forth in the Private Placement Questionnaire is correct and that he is
able to bear the economic risk of an investment in the Offering. The
undersigned further represents that, at a minimum, such investment shall not
exceed 20% of his net worth (alone or jointly with a spouse) at the time of
purchase.
6.8 Connecticut Residents: The undersigned acknowledges that the
Securities have not been registered under the Connecticut Uniform Securities
Act, as amended (the "Act") and are subject to restrictions on transferability
and sale of securities as set forth herein. The undersigned hereby agrees that
such Securities will not be transferred or sold without registration under the
Act or Exemption therefrom.
6.9 Georgia Residents: The undersigned hereby represents that he is
acquiring the securities for investment for his own account and that he is aware
that transferability and resale of the securities is restricted by state and
federal law.
6.10 Indiana Residents: The undersigned hereby represents that he is
acquiring the Securities for his own investment and that he is aware that
transferability and resale of the Securities is restricted by state and federal
law.
6.11 Maine Residents: The undersigned represents that he has (i) a net
worth of $200,000 (exclusive of home, furnishings and automobiles); or (ii) a
net worth of $50,000 (exclusive of home, furnishings and automobiles), and an
annual income of $50,000 or more. The undersigned represents that he is
purchasing the securities for his own account and not with a view to resale or
distribution.
6.12 Michigan Residents: The undersigned represents that he is acquiring
the Securities for investment and hereby agrees not to resell or transfer such
Securities without registration under the Michigan Uniform Securities Act, as
amended, or exemption therefrom.
16
<PAGE>
6.13 South Dakota Residents: The undersigned hereby represents that he
either (i) a minimum net worth (exclusive of home, furnishing and automobiles)
of $30,000 or (ii) a minimum net worth (exclusive of home, furnishings and
automobiles) of $75,000. The undersigned further represents that if he is not
an accredited investor or is an accredited investor solely by reason of his net
worth, income or amount of investment, he shall not make an investment in the
offering in excess of 20% of his net worth (exclusive of home, furnishings and
automobiles).
6.14 Texas Residents: The undersigned hereby acknowledges that the
Securities cannot be sold unless they are subsequently registered under the
Securities Act of 1933, as amended, and the Texas Securities Act, or an
exemption from registration is available. The undersigned further acknowledges
that because the Securities are not readily transferable, he must bear the
economic risk of his investment for an indefinite period of time.
17
<PAGE>
7. CONFIDENTIAL INVESTOR QUESTIONNAIRE
The Subscriber represents and warrants that he, she or it comes within one
category marked below, and that for any category marked, he or she has
truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category.
ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL.
The undersigned agrees to furnish any additional information which the Company
deems necessary in order to verify the answers set forth below.
Category A _____ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint
net worth with his or her spouse, presently exceeds
$1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate, including
your principal residence, cash, short-term investments,
stock and securities. Equity in personal property and
real estate should be based on the fair market value of
such property less debt secured by such property.
Category B _____ The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of
$200,000 in each of 1993 and 1994, or joint income with
his or her spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax exempt
income and full amount of capital gains and losses but
excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in 1995 .
Category C _____ The undersigned is a director or executive officer of the
Company which is issuing and selling the Securities.
Category D _____ The undersigned is a bank; a savings and loan
association, insurance company, registered investment
company; registered business development company;
licensed small business investment company ("SBIC"); or
employee benefit plan within the meaning of Title 1 of
ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan
association, insurance company or registered investment
advisor, or (b) the plan has total assets in excess of
$5,000,000 or is a self directed plan with investment
decisions made solely by persons that are accredited
investors.
_________________________________________________________
18
<PAGE>
---------------------------------------------------------
(Describe Entity)
Category E _____ The undersigned is a private business development company
as defined in section 202(a)(22) of the Investment
Advisors Act of 1940.
_________________________________________________________
_________________________________________________________
(Describe Entity)
Category F _____ The undersigned is a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Subsection 5.501(c)(3) of the
Internal Revenue Code, in each case not formed for the
specific purpose of acquiring the Securities and with
total assets in excess of $5,000,000.
_________________________________________________________
_________________________________________________________
(Describe Entity)
Category G _____ The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the Securities, where the purchase is directed
by a "sophisticated person" as defined in Regulation 506
(b)(2)(ii).
Category H _____ The undersigned is an entity all the equity owners of
which are "accredited investors" within one or more of
the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy of
this Agreement.
_________________________________________________________
_________________________________________________________
(Describe Entity)
Category I _____ The undersigned is not within any of the categories above
and is therefore not an accredited investor.
The undersigned is informed of the significance of the foregoing
representations, and the fact that they are made with the intention that the
Company will rely upon them.
19
<PAGE>
8. MANNER IN WHICH TITLE TO BE HELD (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties must sign)
(d) Partnership*
(e) Tenants in Common
(f) Corporation*
(g) Trust*
(h) Other
*If Securities are being subscribed for by an entity, the attached Certificate
of Signatory must also be completed.
20
<PAGE>
9. NASD AFFILIATION
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
_________________________________
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
21
<PAGE>
________________________________ UNIT(S)
Number of Units Subscribed For
_____________________________________ ______________________________________
Signature Signature (if held jointly)
_____________________________________ ______________________________________
Name (Typed or Printed) Name (Typed or Printed)
_____________________________________ ______________________________________
Residence Address Residence Address
_____________________________________ ______________________________________
City, State and Zip Code City, State and Zip Code
_____________________________________ ______________________________________
Tax Identification or Social Security Tax Identification or Social Security
Number Number
Telephone Number: Telephone Number:
Business ( ) ______________________ Business ( ) ________________________
Residence ( ) ______________________ Residence ( ) ________________________
Name in which securities should be issued:
_______________________________________________
Dated: _____________________________, 1995
- --------------------------------------------------------------------------------
This Subscription Agreement is agreed to and accepted as of _____________, 1995.
Xytronyx, Inc.
BY: ________________________________________
Signature
________________________________________
Printed
________________________________________
Title
22
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Securities are being subscribed for by an entity)
I, ________________________________, am the ________________________ of
__________________________________________(the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Confidential Private Placement Memorandum and to
purchase and hold the Units, and certify further that the Private Placement
Memorandum has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this _______ day of
_____________________, 1995.
__________________________________________
Signature
23
<PAGE>
Exhibit 4.2
Lock-Up Agreement
-----------------
Xytronyx, Inc.
6555 Nancy Ridge Drive
San Diego, CA 92121
Dear Sirs:
In connection with my purchase of units (the "Units") consisting of
common stock, par value $.02 (the "Common Stock"), and warrants (the "Warrants")
of Xytronyx, Inc. (the "Company") pursuant to that certain subscription
agreement (the "Subscription Agreement") accepted by the Company as of the date
hereof between myself and the Company, I hereby agree that from the date hereof
and continuing for a period (the "Lock-Up Period") of:
(a) six (6) months from the Final Closing Date (as defined in the
Subscription Agreement) with respect to seventy-five percent (75%) of
each of the Shares (as defined below) and the Warrant Shares (as
defined below);
(b) nine (9) months from the Final Closing Date with respect to fifty
percent (50%) of each of the Shares and the Warrant Shares; and
(c) twelve (12) months from the Final Closing Date with respect to the
remaining twenty-five percent (25%) of each of the Shares and the
Warrant Shares,
I will not, without the prior written consent of Paramount Capital, Inc., offer,
pledge, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any Shares. For the sake of clarity, there
shall be no Lock-Up Period with respect to twenty-five percent (25%) of the
Shares. In addition, while I hold any Shares, I will not directly or
indirectly, through related parties, affiliates or otherwise sell "short" or
"short against the box" (as those terms are generally understood) any equity
security of the Company. The term "Shares" shall mean the number of shares of
Common Stock purchased by me pursuant to the Subscription Agreement and the
"Warrant Shares" shall mean the number of shares of Common Stock issuable upon
exercise of the Warrants also purchased by me pursuant to the Subscription
Agreement.
The provisions of this agreement shall be binding upon the undersigned
and the assigns, heirs, and personal representatives of the undersigned and
shall be for the benefit of the Company.
Very truly yours,
_____________________________
Print Name:
Title (if any):
Agreed and Accepted as of _____________
XYTRONYX, INC.
_______________________________________
Name:
Title:
<PAGE>
Exhibit 4.3
September 11, 1995
New York, New York
Paramount Capital, Inc.
375 Park Avenue
Suite 1501
New York, New York 10152
Dear Sirs:
Xytronyx, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement to retain Paramount Capital, Inc. (the "Placement Agent")
on an exclusive basis to introduce the Company to and to procure subscriptions
from certain "accredited investors" (as defined in Regulation D under the
Securities Act of 1933, as amended) as prospective purchasers of units (the
"Units") of the Company at a purchase price of $100,000, with each "Unit"
consisting of (a) 80,000 shares of Common Stock, par value $.02, of the Company
(the "Common Stock") and (b) 100,000 warrants to purchase 100,000 shares of
Common Stock at an exercise price of $1.00 and exercisable for a period of ten
years from the date of issuance (the "Warrants"). The sale to such purchasers
(the "Offering") will be made through a private placement by the Placement Agent
(or its designated selected dealers which will be bound by agreements
substantially the same as contained herein for the Placement Agent) on a "best
efforts" basis, pursuant to separate purchase agreements (the "Purchase
Agreements") in accordance with the applicable laws of the United States and
pursuant to the following procedures and terms and conditions:
1. (a) The Company will make available to each prospective purchaser
at a reasonable time prior to the purchase of the Units the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Offering and the opportunity to obtain additional information
necessary to verify the accuracy of the documents delivered in connection with
the purchase of the Units (such documents, collectively with the Purchase
Agreements, the "Offering Documents") to the extent it possesses such
information or can acquire it without unreasonable effort or expense. After the
Offering Documents have been reviewed by investors, and they have had the
opportunity to address all inquiries to the Company, separate Purchase
Agreements will be completed with each prospective investor. The Company
covenants that it will perform all of its agreements set forth in the Purchase
Agreements and that the Placement Agent may rely on the representations and
warranties granted each purchaser in the Purchase Agreements which
representations and warranties are hereby incorporated herein by this reference.
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<PAGE>
(a) The Offering Documents, as of their respective dates, do and will
(i) describe the material aspects of an investment in the Company, (ii) contain
information and material required by Regulation D for sale to accredited
investors, as defined in Regulation D and (iii) not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the completion of the Offering or other termination of this Agreement any
event shall occur as a result of which it becomes necessary to amend or
supplement any of the Offering Documents so that they do not include any untrue
statement of any material fact or omit to state any material fact necessary in
order to make statements therein, in the light of the circumstances then
existing, not misleading, the Company will promptly notify the Placement Agent
and will supply the Placement Agent with amendments or supplements correcting
such statement or omission. The Company acknowledges that the Placement Agent
has not supplied any information for inclusion in the Offering Documents other
than information furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Offering Documents, that the Placement Agent
has not independently verified any of the information contained in the Offering
Documents and that the Placement Agent has no responsibility for the accuracy or
completeness of the Offering Documents.
(b) The Company will use its best efforts to qualify, or perfect the
exemption of, the Units for offer and sale in those states reasonably designated
by the Placement Agent.
(c) The Company will (i) if required by the Placement Agent cause the
Company's independent public accountants to address and deliver to the Company
and the Placement Agent a letter or letters (which letters are frequently
referred to as "Comfort Letters") dated as of the date of of each closing and
the Closing Date (as defined below) and the effective date (the "Effective
Date") of the registration statement required to be filed in connection with the
Purchase Agreements (the "Registration Statement"); and (ii) at each closing and
on the Closing Date and the Effective Date, cause counsel to the Company to
deliver an opinion to the Placement Agent (stating that each of the purchasers
may rely thereon as though addressed directly to such purchaser) in a form
reasonably satisfactory to the Placement Agent and its counsel.
(d) The Company hereby represents and warrants to the Placement Agent
that from and after the date hereof and until the Closing Date, the Company,
including its officers and its agents, will not (i) enter into an agreement with
any person other than the Placement Agent for the purpose of engaging, or
considering the engagement of, such person as a finder or broker in connection
with the sale by the Company of any securities of the Company and (ii) purchase
or sell, contract to purchase or sell, or otherwise acquire or dispose of or
issue any equity or convertible securities of the Company.
(e) So long as the Registration Statement is effective covering the
resale of the Common Stock and the Common Stock issuable upon conversion of the
Warrants, the Company will furnish to the Placement Agent all information which
2
<PAGE>
the Company undertakes to provide to the purchasers pursuant to the Purchase
Agreements.
(f) The warrants to purchase Common Stock to be issued to the
Placement Agent in consideration of the sale of the Units hereunder (the
"Placement Warrants") have been duly authorized for issuance and sale and, upon
issuance and payment therefor, will be duly executed, issued and delivered and
will constitute a valid and legally binding obligation of the Company
enforceable in accordance with their terms (subject to the availability and
enforceability of equitable remedies, and to applicable bankruptcy, insolvency
and other laws affecting the rights of creditors generally). The Company has
reserved for issuance upon conversion of the Placement Warrants such number of
its authorized but unissued shares of Common Stock deliverable upon exercise of
the Placement Warrants as will be sufficient to permit the exercise in full of
the Placement Warrants.
(g) The Company is duly organized and validly existing and in good
standing as a corporation under the laws of the State of Delaware. This
Agreement has been duly and validly authorized, executed and delivered by the
Company and, assuming due execution and delivery of this Agreement by the
Placement Agent, this Agreement constitutes a valid and binding agreement of the
Company enforceable in accordance with its terms (subject to the availability
and enforceability of equitable remedies, and to applicable bankruptcy,
insolvency and other laws affecting the rights of creditors generally); the
performance of this Agreement and the Placement Warrants and the consummation of
the transactions contemplated hereby and thereby will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under
or conflict with, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, material lease, contract or other agreement or instrument to which
the Company is a party or by which the Company or any of its property is bound,
or under the Restated Certificate of Incorporation or By-Laws of the Company or
under any statute or under any order, rule or regulation applicable to the
Company or its business or property or approval of any court or other
governmental agency or body is required for the consummation by the Company of
the transactions on its part herein or therein contemplated, except such as may
be required under the Securities Act of 1933, as amended (the "Act") or under
state securities or blue sky laws.
(h) In connection with the Offering, the Company will not engage in
any action or actions which would cause the Offering not to be in compliance
with applicable federal and state securities laws so as to preserve the
exemption provided in Section 4(2) of the Act and any applicable rules or
regulations promulgated thereunder or under such state securities laws and will
not make any offers to sell Units to, or solicit offers to subscribe for any
Units from, persons in states where the Offering and the Units have not been
qualified or exempted under the applicable state securities statute.
(i) There is no material litigation, governmental or other proceeding,
pending or, to the best of the the Company's knowledge, threatened against the
Company or any controlling person of the Company that involves allegations of
improper or illegal conduct under federal or state laws.
3
<PAGE>
2. (a) The Placement Agent is duly organized an validly existing and
in good standing as a corporation under the laws of the State of New York with
full and adequate power and authority to enter into and perform this Agreement.
(b) In Offering the Units the Placement Agent will deliver (or direct
the Company to deliver) to each prospective purchaser, prior to accepting any
subscription from such prospective purchaser, the Offering Documents, and will
not offer any of the Units for sale, or solicit any offers to subscribe for any
Units, or otherwise approach or negotiate with any person in respect of the
Units, on the basis of any written information except the Offering Documents and
any cover or transmittal letter therefor, and any other documents approved for
such use by the Company or counsel to the Company. The Placement Agent will
cooperate with the Company in the preparation of the Offering Documents, will
exercise reasonable care to ensure that prospective purchasers for Units are not
underwriters within the meaning of Section 2(11) of the Act and will not engage
in a general solicitation or employ general advertising in connection with the
Offering.
(c) The Placement Agent will conduct the Offering in compliance with
applicable federal and state securities laws so as to preserve the exemption
provided in Section 4(2) of the Act and any applicable rules or regulations
promulgated thereunder or under such state securities laws and will make offers
to sell Units to, or solicit offers to subscribe for any Units from, persons in
only those states where the Company has informed the Placement Agent in writing
that the Offering and the Units have been qualified, or the Company has
determined that an exemption from such qualification is available, under the
applicable state securities statute. The Placement Agent will accept
subscriptions only from persons that the Placement Agent reasonably believes are
"accredited investors" (as defined in Regulation D under the Securities Act of
1933, as amended). The final acceptance of any subscription shall be made only
after the Company has reviewed the Purchase Agreement and agreed to such final
acceptance.
(d) The Placement Agent will maintain a record for the period
specified in Rule 17a-4 promulgated by the Securities and Exchange Commission
(the "Commission") under the Act, or such longer period, if any, required by
relevant state regulatory authorities, of all information obtained by the
Placement Agent indicating that prospective purchasers for Units meet applicable
suitability standards and at each closing the Placement Agent will deliver to
the Company the original copies of all accepted Purchase Agreements and have no
reason to believe that said information and the representations of each
Purchaser as set forth in the Purchase Agreement executed thereby are untrue.
(e) The Placement Agent is, and at each closing will be, a securities
broker-dealer registered with the Commission and any jurisdiction where broker-
dealer registration is required in order to offer and sell the Units and a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD").
(f) There is no material litigation, governmental or NASD proceeding,
pending or, to the best of the Placement Agent's knowledge, threatened against
the Placement Agent or any controlling person of the Placement Agent that
4
<PAGE>
involves allegations of improper or illegal conduct under federal or state
securities laws.
(g) The Placement Agent will handle, transmit and deposit all funds
from the sale of Units in accordance with the requirements of Rule 15c-2(4)
promulgated under the Act.
3. (a) Ten (10) Units ($1,000,000) are being offered on a "best
efforts, all or none" basis, and an additional fifteen (15) Units ($1,500,000)
are being offered on a "best efforts" basis. The terms of the Offering will be
as described in the Offering Documents.
(a) A closing or closings of the Offering will occur no later than
sixty (60) days following completion of the Offering Documents (to be prepared
by the Company with the assistance of the Placement Agent), subject to extension
at the option of the Agent for up to an additional sixty (60) days (the "Closing
Date"). If the initial closing is for subscriptions aggregating less than
twenty-five Units, then subsequent closings will be held until the Closing Date
or until the receipt of twenty-five Units, whichever is earlier. In the event
that valid subscriptions for at least $1,000,000 of Units are not received by
the Closing Date, subscriptions will be released from escrow and returned to
customers, together with interest, if any.
(b) In consideration of your services hereunder, the Company shall
deliver to you and/or your designees: (i) an advance nonrefundable retainer of
$30,000 (creditable against the Expense Allowance, as defined below), (ii) cash
commissions equal to 9% of the price of the Units issued in the Offering (the
"Selling Commissions"), (iii) a non-accountable expense allowance equal to 4% of
the price of the Units issued in the Offering (the "Expense Allowance") and (iv)
Placement Warrants to acquire a number of newly issued Units equal to 12.5% of
the Units issued in the Offering, exercisable for a period of ten years at 110%
of the price per Unit sold to investors in the Offering, and will provide for a
cashless exercise feature. In addition, Paramount will receive a commission of
6% of the gross proceeds received from the exercise of the Warrants. The Selling
Commissions and the Expense Allowance shall be paid, by the Company to the
Placement Agent, through the escrow agent, substantially simultaneously with the
transfer of proceeds of the subscriptions from investors to the Company, all in
accordance with terms of the escrow agreement to be entered into between the
Company, the Placement Agent and the escrow agent.
(c) The Company agrees that the Selling Commissions, Expense Allowance
and Placements Warrants as set forth above will apply to investors introduced to
the Company by Paramount who invest in the Company (other than in a public
offering) during the twelve months following the Closing Date or earlier
termination of this Agreement by the Company pursuant to paragraph 6(d) below.
In addition, upon the closing of the Offering, the Company and Paramount will
enter into an engagement agreement whereby Paramount will act as the Company's
non-exclusive financial advisor to assist the Company in identifying and
negotiating one or more corporate or strategic alliances. Such engagement
agreement will provide that Paramount receive a monthly retainer of $2,500
(minimum engagement of twelve months), out-of-pocket expenses and standard
5
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success fees on corporate partners first introduced to the Company by the
Placement Agent.
(d) The Company agrees that it will pay all legal and other costs
associated with the preparation of the Offering Documents, including but not
limited to, the costs of preparing and reproducing the Offering Documents, the
legal fees of qualifying the Offering under the blue sky laws pursuant to
Section 1(c) above and the cost of maintaining the escrow account (estimated to
be approximately $5,000). The Placement Agent will be responsible for its own
legal fees and other expenses, except as provided herein.
4. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless the Placement Agent, the Placement Agent's directors, officers,
employees and agents and each person who controls the Placement Agent within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and each and all of them, from and against
any and all losses, claims, damages, liabilities or actions, joint or several,
to which the Placement Agent or any of them may become subject under the Act,
the Exchange Act, any other Federal or state statutory law or regulation or at
common law or otherwise and to reimburse the persons indemnified as above for
any legal or other expenses (including the cost of any investigation and
preparation) incurred by them in connection with any litigation or threatened
litigation, whether or not resulting in any liability, to the extent arising out
of, or based upon, (i) any untrue statement of a material fact contained in the
Offering Documents or in any application or other document executed by the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to register or qualify the Units
under the securities laws thereof, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (ii) a claim to the extent resulting from the breach of any
representation, warranty, covenant or agreement of the Company contained in this
Agreement or (iii) the employment by the Company of any device, scheme or
artifice to defraud, or the engaging by the Company in any act, practice or
course of business which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company shall participate, in
connection with the issuance and sale of any of the Units; provided, however,
-------- -------
that the Company's obligations to indemnify hereunder shall not be applicable to
any liability based on an untrue statement or omission which was made in
reliance upon and in conformity with information furnished in writing to the
Company by the Placement Agent specifically for inclusion in the Offering
Documents. The Company agrees to pay any legal and other expenses for which it
is liable under this subsection (a) from time to time (but not more frequently
than monthly) within thirty (30) days after its receipt of a bill therefor. The
Company also agrees that the Placement Agent shall not have any liability
(whether direct or indirect, in contract, tort or otherwise) to the Company for
or in connection with the engagement of the Placement Agent hereunder except for
any such losses, claims, damages, liabilities or actions that it is found in a
final judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted primarily and directly from the gross negligence or
wilful misconduct of the Placement Agent; provided, however, that in no event
-------- -------
shall the Placement Agent be liable pursuant to this paragraph 4(a) for any
amount in excess of the Selling Commissions paid to the Placement Agent.
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<PAGE>
(a) The Placement Agent agrees to indemnify and hold harmless the
Company, the Company's directors, officers, employees and agents and each person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and each and all of them, to the same extent as the
foregoing indemnity from the Company to the Placement Agent, but only with
reference to information furnished in writing to the Company by the Placement
Agent specifically for inclusion in the Offering Documents.
(b) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a) and (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsection, such indemnified party shall promptly notify such indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party on account of the
indemnity agreement contained in subsections (a) and (b) of this Section 4
unless the indemnifying party does not otherwise learn of such action and the
indemnifying party as a result thereof is prejudiced thereby and then solely to
the extent of such prejudice. In case any such action is brought against an
indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party against which a claim is to be made will be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include
-------- -------
both the indemnified party and the indemnifying party and the indemnified party
reasonably determines that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party shall have the right
to select one separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the immediately preceding sentence, (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnifying party within reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party, but in no event shall the indemnifying party be liable for
the legal and other expenses incurred in connection with the retention of more
than one separate counsel for all indemnified parties for any such action. An
indemnifying party shall not be liable for any settlement of any action or
proceeding effected without its written consent.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in subsections (a)
and (b) of this Section 4 is unavailable to an, or insufficient to hold harmless
any, indemnified party for any reason, the Company and, subject to the
7
<PAGE>
limitations set forth below, the Placement Agent shall, in lieu of
indemnification, contribute to the aggregate losses, claims, damages and
liabilities, of the nature contemplated by said indemnity agreement, incurred by
the Company and the Placement Agent, in such proportions as are applicable to
reflect the relative benefits received by the Company on the one hand and the
Placement Agent on the other hand from the offering of the Units; provided,
--------
however, that if such allocation is unavailable for any reason, then the
- -------
relative fault of the Company, on the one hand, and the Placement Agent, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative benefits. The
relative benefits received by the Company on the one hand and the Placement
Agent on the other hand shall be deemed to be in the same proportion as the
total proceeds from the sale of Units (net of the Selling Commissions paid to
the Placement Agent but before deducting expenses) received by the Company from
purchasers arranged by the Placement Agent bears to the Selling Commissions paid
to the Placement Agent with respect to such purchasers. The relative fault
shall be determined by reference to, among other things, whether in the case of
an untrue statement or alleged omission to state a material fact, such statement
or omission relates to information supplied by the Company or the Placement
Agent and the party's relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid or payable by the indemnified party as a result of the losses, claims,
damages or liabilities referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against or appearing as a
third party witness in any such action or claim. No person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Act shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this subsection (d), each person, if any,
who controls the Placement Agent or the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act and each of the Placement Agent's
or the Company's directors, officers, employees and agents shall have the same
rights to contribution as the Placement Agent and the Company as the case may
be.
(d) Notwithstanding the provisions of this Agreement, the aggregate
indemnification or contribution of the Placement Agent for or on account of any
losses, claims, damages, liabilities or actions shall not exceed the Selling
Commissions paid to the Placement Agent. The respective indemnity and
contribution agreements by the Company and the Placement Agent contained in
subsections (a), (b), (c) and (d) of this Section 4, and the covenants,
representations and warranties of the Company and the Placement Agent set forth
in Sections 1, 2 and 3 shall remain operative and in full force and effect
regardless of (i) any investigation made by the Placement Agent, on the
Placement Agent's behalf or by or on behalf of any person who controls the
Placement Agent, the Company or any controlling person of the Company or any
director or officer of the Company, (ii) acceptance of any of the Units and
payment therefor or (iii) any termination of this Agreement, and shall survive
the delivery of the Units, and any successor of the Placement Agent or of the
Company or of any person who controls the Placement Agent or the Company, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements
by the Company and the Placement Agent contained in subsections (a), (b), (c)
8
<PAGE>
and (d) of this Section 4 shall be in addition to any liability which the
Company and the Placement Agent may otherwise have.
5. Notices: (a) All communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and if sent shall be mailed
and delivered to the Placement Agent at the address listed above, Attention:
Michael S. Weiss and to the Company at 6555 Nancy Ridge Drive, Suite 200, San
Diego, California 92121, Attention: Chief Executive Officer.
(a) Notice shall be deemed to be given when it is delivered, or two
days after it is mailed, as provided in subsection (a) of this Section 5.
6. Miscellaneous. (a) This Agreement shall inure solely to the
-------------
benefit of, and shall be binding upon you, the Company and each person entitled
to indemnification or contribution under Section 4 hereof, and their respective
successors, heirs, legal representatives and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provision herein
contained.
(a) This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof and no waiver or modification
of the terms hereof shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth.
(b) Nothing contained herein or otherwise shall create a partnership
or joint venture between you and the Company.
(c) Subject to the Company's obligation pursuant to Section 3(d) and
the general survival provisions of Section 4(e), this Agreement may be
terminated by either party upon written notice to the other party.
(d) This Agreement shall in all respects be construed in accordance
with and governed by the laws of the State of New York, regardless of laws that
might be applicable under principles of conflicts of laws.
9
<PAGE>
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
shall constitute a binding agreement between us.
XYTRONYX, INC.
By:_____________________________
Name: Mr. Larry O. Bymaster
Title: Chief Executive Officer
Agreed to by:
PARAMOUNT CAPITAL, INC.
By:_________________________________
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
10
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Exhibit 5
December 12, 1995
Xytronyx, Inc.
6555 Nancy Ridge Drive
Suite 200
San Diego, California 92121
Re: 3,136,500 Shares of Common Stock,
$.02 par value, 3,920,625 Warrants to
Purchase Common Stock and 3,920,625
Shares of Common Stock Issuable Upon
Exercise of the Warrants
-------------------------------------
Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") being filed by Xytronyx, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shelf registration of a total of 3,920,625 issued and outstanding shares (the
"Shares") of Common Stock of the Company, $0.02 par value, 3,920,625 warrants to
purchase Common Stock (the "Warrants") and 3,920,625 shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") on behalf of
certain holders of these securities named in the Registration Statement (the
"Selling Stockholders"). You have requested that we furnish our opinion as to
the matters set forth below.
In this connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have considered
necessary or advisable for the purpose of this opinion. We have relied as to
factual matters on certificates or other documents furnished by the Company or
its officers and directors and by governmental authorities and upon such other
documents and data as we have deemed appropriate. We have assumed the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies. We have not
independently verified such information and assumptions.
We express no opinion as to the law of any jurisdiction other than the
laws of the State of New York and the corporate laws of the State of Delaware.
Subject to the foregoing and based on such examination, we are of the
opinion that (i) the Shares are duly authorized, validly issued, fully paid and
nonassessable, (ii) the Warrants have been duly authorized and validly issued,
and (iii) the Warrant Shares have been duly authorized and, upon delivery and
payment therefor in accordance
<PAGE>
with the terms of the Warrants, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm which appears in the
Prospectus constituting a part thereof under the caption "Legal Opinions." In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/Donovan Leisure Newton & Irvine
<PAGE>
Exhibit 24.2
INDEPENDENT AUDITORS' CONSENT
Xytronyx, Inc.:
We consent to the incorporation by reference in this Registration Statement of
Xytronyx, Inc. (a development stage enterprise) on Form S-3 of our report dated
May 12, 1995 (which report contains an explanatory paragraph referring to the
Company's activities as those of a development stage enterprise and to the
Company's ability to continue as a going concern), incorporated by reference in
the Annual Report on Form 10-K of Xytronyx, Inc. for the year ended March 31,
1995 and to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
Deloitte & Touche LLP
San Diego, California
December 14, 1995
